Forced delisting for financial fraud!
In December 2023, the Supreme People's Procuratorate held a press conference to release the 2023 financial procuratorial work case examples, which involved the fraud of listed companies, which is a classic "Zhangzidao" case of illegal disclosure of important information.
So far, the unsolved case of "scallops running away", which lasted for nearly ten years, has come to an end.
Wu Hougang, the former chairman of Zhangzidao, was sentenced to 15 years in prison, which is almost the upper limit of economic cases, and it can be said that the handling is very happy. At the same time, it also let everyone understand that the upper limit of illegal listings is not a fine of 600,000, but the real upper limit is: bankrupt and imprisoned.
However, there are still listed companies that have the best iron to defy the law and continue to challenge the limits of the law.
On February 2, 2024, Poten Environment (*ST Potian) announced that due to financial fraud for five consecutive years, the Shanghai Stock Exchange has issued the "Prior Notice on the Proposed Termination of the Listing of the Shares of Poten Environment Group Co., Ltd." to the company, and decided to terminate the listing of the company's shares.
Xingkong Jun studied the company's fraudulent records and found that it was a "perfect" replica of the former Wanfu Shengke.
1. A fraudulent project that is easy to overlook: construction in progress
The Administrative Penalty Decision found that *ST Poten had falsely increased or reduced its operating income and profits in a variety of ways, resulting in false records in its annual reports from 2017 to 2021.
In March 2023, the Company issued an announcement on the adjustment of accounting errors:
In 2017, the accounts receivable were overrecorded by 72.0568 million yuan, the construction in progress was overrecorded by 279 million yuan, and the accounts payable was overrecorded by 226 million yuan.
In 2018, the accounts receivable were overrecorded by 393 million yuan, the construction in progress was overrecorded by 1.059 billion yuan, and the accounts payable were overrecorded by 790 million yuan.
In 2019, the accounts receivable were 6.5928 million yuan, the construction in progress was 881 million yuan, and the accounts payable were 350 million yuan.
In 2020, accounts receivable were underrecorded by 3.8195 million yuan, projects under construction were overrecorded by 822 million yuan, and accounts payable were overrecorded by 351 million yuan.
In 2021, the accounts receivable were overrecorded by 419 million yuan and the accounts payable were overrecorded by 358 million yuan.
The most fraudulent amount over the years is in construction projects.
How did the inflated revenue and profits become the inflated construction in progress?
In fact, this is related to the basic principle of financial accounting: there must be a loan, and the loan must be equal. You can't increase your income out of thin air, and when you inflate your income, the offset account is often placed in accounts receivable as a credit business.
This kind of fictitious accounts receivable must not be recovered, the audit of listed companies is stricter, and the long-term accounts receivable will be charged bad debts by the firm, and it will be transferred to the project under construction.
The direct transfer will definitely be seen by the firm, so it will sign a false creditor's rights and debts transfer agreement and an entrusted payment agreement, pretend to have received the money, and replace it with a construction project.
As a result, with the inflated income, the construction projects in progress continue to be inflated.
The company's main business is sewage treatment, and it is difficult for the firm that lacks professional knowledge to judge the actual value of the sewage treatment plant, so it is fooled and fooled (of course, whether there is a profit transfer in the middle needs to wait for the follow-up investigation and punishment).
Xingkong Jun can assert that almost all asset-heavy enterprises (asset-liability ratio of more than 75%) have made up their minds on the subject of construction in progress.
The reason is simple, construction in progress is a very special subject that can be easily manipulated.
According to the accounting standards, the plant and equipment under construction can be included in the construction in progress, the interest on the loan used to build the plant and equipment can be included in the construction in progress (interest capitalization), the scraps repaired in the construction process (as long as there are suitable invoices and even food, drink and entertainment expenses) can be included in the construction in progress, and the wages and bonuses of construction personnel can be included in the construction in progress.
Seeing this, smart readers and friends, do you already have a sense of picture?
What's worse is that the construction in progress does not need to be depreciated. This also means that if it is not transferred to fixed assets for a long time, the construction in progress does not need to be amortized and will not affect profits.
What a perfect accounting subject.
2. How was it found to be fake?
On December 29, 2022, the Company changed its Chief Financial Officer. Mr. Zhao Qing, the former chief financial officer, resigned and Mr. Liu Yifeng took over.
The latter's resume is very glamorous:
From September 2002 to May 2003, he served as the accounting assistant of Inner Mongolia Jinchuan Beer Co., Ltd., from June 2003 to December 2004, as the financial consultant of Beijing Rongzhi Jinan Financial Consulting Co., Ltd., from December 2004 to May 2010, as the senior project manager of Beijing Xinghua Certified Public Accountants, from May 2010 to August 2020, as the chief financial officer of a subsidiary of China Energy Conservation and Environmental Protection Group Corporation, and from August 2020 to December 2022, as the chief financial officer of Shenzhen Dymind Biotechnology Co., Ltd。 Since December 2022, he has served as the company's chief financial officer. He is currently the Chief Financial Officer of the Company.
December is the time to prepare for the annual report, and there is usually only one reason for the change of manager: the former financial director has objections to the upcoming annual report.
Is there anything different about this annual report?
The accounting error adjustment mentioned above was issued after the change of the CFO.
This is a "self-imposed net".
Considering that few people will take the initiative to admit fraud, I would venture to guess that Mr. Liu Yifeng, who is experienced, should have fully communicated with the board of directors to strive for "leniency" and exchange the least price for a lighter punishment.
However, then the Shanghai Stock Exchange sent a regulatory letter (March 31, 2023) and asked the company sharply: please verify whether the above matters may lead to the company's delisting and other risks.
Third, the fine of 13 million is just the beginning
The Beijing Securities Regulatory Bureau issued a fine of 13 million yuan, including 3 million yuan for the chairman of the board of directors and 1 million yuan for the then chief financial officer.
However, this is not the final result. According to relevant laws and regulations, the responsible person may be arrested and brought to justice when criminal liability is subsequently involved.
There is an interesting point that Mr. Zhao Qing, the former chief financial officer, was also a "backstopper", because the Beijing Securities Regulatory Bureau punished Ms. Gao Feng, the then chief financial officer.
Ms. Gao Feng received an equity incentive of 320,000 shares, with a market value of more than 10 million at the peak, and was promoted to senior vice president in 2017, with an annual salary of more than 1 million in 2021, and left in 2022 (born in 1976, so it is not retired).
In April 2022, before the release of the 2021 annual report, the company announced that Ms. Gao Feng applied for resignation as senior vice president of the company due to personal reasons. After her resignation, Ms. Gao Feng no longer holds any position in the Company.
Whether it will be held accountable by the board of directors or temporarily avoided the limelight is unknown, and it will need to wait until the truth is finally revealed.
And Ms. Gaofeng's shares were basically not sold, falling from the highest value of more than 10 million to hundreds of thousands and then delisted...