Gome Communications and Soochow Securities are on a big deal!

The chairman, general manager and chief financial officer of a listed company were banned from the market for 10 years by the China Securities Regulatory Commission and fined 3 million yuan respectively for suspected false records in annual reports and fraudulent issuance. Such stories are being told by Gome Communication Equipment Co., Ltd. (600898. SH, hereinafter referred to as "ST News" or "GOME Communication").

The boss of Gome Communications is Huang Guangyu, the former richest man in China's retail industry.

On April 17, due to the suspected fraudulent issuance of private placement by Gome Communications, the sponsor brokerage Soochow Securities (601555. SH) was investigated by the China Securities Regulatory Commission.

On April 18, a reporter from the Economic Observer Network called the office of the secretary of the board of directors of Soochow Securities on the question of "whether the investigation will affect the sponsorship business of Soochow Securities". The other party replied that at present, the operation of Soochow Securities is normal, and the announcement shall prevail.

Suspected of false records in annual reports and fraudulent issuance

ST Meixun disclosed that on April 15, the company received the "Prior Notice of Administrative Punishment and Market Prohibition" (Penalty Zi [2024] No. 52) (hereinafter referred to as the "Notice") from the China Securities Regulatory Commission, and ST Meixun and 6 then senior executives - Chairman Song Linlin, General Manager Song Huohong, Chief Financial Officer Guo Chen, Director Dong Xiaohong, Chairman of the Board of Supervisors Fang Wei, and Secretary of the Board of Directors Shao Jie were punished.

The facts of the suspected violations of laws and regulations ascertained by the CSRC are: there are false records in the 2020 annual report and the 2021 annual report of GOME Communications.

In 2020, GOME participated in the trade business of Apple mobile phones, Konka color TVs, and Huawei mobile phones carried out by related parties under the control of the same actual controller, and the trade business had a closed loop of contracts and funds, which was a false purchase and sale business. Gome Communications falsely inflated its operating income of 578.2356 million yuan and operating costs of 574.5925 million yuan in 2020 through false trade business, accounting for 61.53% of the operating income and 62.18% of the operating costs of the year, respectively, and there were false records in Gome Communication's 2020 annual report.

Improper accounting treatment of deferred income tax asset recognition, right-of-use assets and lease liabilities in 2021. On April 29, 2023, GOME issued the "Reminder Announcement on the Correction of Accounting Errors and Retrospective Adjustments in the Previous Period" to correct and retrospectively adjust the accounting errors in the 2021 financial statements. In 2021, the misstated net profit of Gome Communications was 19.6298 million yuan, accounting for 38.35% of the net profit recorded in the current report, and there were false records in Gome Communication's 2021 annual report.

Another fact identified by the CSRC for suspected violations of laws and regulations is that Gome Communications' non-public offering of shares in 2020 constituted a fraudulent issuance.

The relevant documents of Gome Communication's 2020 non-public offering cited the above-mentioned false trade business revenue data, and the company's false trade business revenue recognized from January to September 2020 was 578.2356 million yuan, accounting for 86.21% of the current operating income. In March 2021, the China Securities Regulatory Commission approved Gome Communications' application for a non-public offering, that is, a directional issuance of shares to the controlling shareholder Shandong Longji Island Construction Co., Ltd. (hereinafter referred to as "Shandong Longji"), raising a total of 165.6001 million yuan, and the raised funds were mainly used for the transformation project of Jingmei Electronics' intelligent terminal production line. There were false records in the documents related to the non-public issuance of shares by GOME, which constituted a fraudulent issuance.

The CSRC believes that Song Linlin, Song Huohong, Guo Chen, Dong Xiaohong, Fang Wei and Shao Jie were not diligent and conscientious, of which Song Linlin, Song Huohong and Guo Chen were directly responsible for the supervisors, and Dong Xiaohong, Fang Wei and Shao Jie were the other directly responsible personnel.

In the end, Gome Communications was fined 21.56 million yuan; Song Linlin, Song Huohong, and Guo Chen were fined 3 million yuan; the three were banned from the market for 10 years because they played a major role in the illegal activities involved in the case, violated the law badly, seriously disrupted the order of the securities market, seriously harmed the interests of investors, and the circumstances were relatively serious; Dong Xiaohong and Fang Wei were fined 2 million yuan, and Shao Jie was fined 1.8 million yuan. All of the above penalties were given warnings.

Executives were fined

Huang Guangyu is the actual controller of Gome Communications. He controls 100% of Shandong Longji through China Pengrun Capital Co., Ltd., which holds a 29.20% stake in Gome Communications and is the largest shareholder of Gome Communications.

The six people who were punished above have all worked in the GOME system for many years.

According to public information, Song Linlin has served as the vice president of Gome Electrical Appliance Co., Ltd. since 2012, in charge of Gome's home appliance procurement business system, in 2015, he was appointed as the vice president of Gome Online, in charge of the online self-operated business system, from January 2017 to July 2018, he served as the president of Gome Intelligent Technology Co., Ltd., from July 2018 to July 2019, he served as the general manager of Gome Electrical Appliance Co., Ltd. in South China, and from July 2019 to December 2022 Since December 2022, he has served as Vice President of Logistics and Network Development of Gome Retail ToC Business Group, General Manager of Logistics Operation and Sales Center, and currently General Manager of Shanghai Region and East China Region.

Song Huohong is also a veteran employee of the Gome system. According to public information, Song Huohong successively served as the financial manager of Chengdu Gome Electrical Appliances, the financial director of Chengdu Gome Electrical Appliances, and the financial director of the Western Region of Gome Electrical Appliances from 2000 to 2012, the general manager of Chongqing Gome Electrical Appliances from 2012 to 2017, the general manager of Chengdu Gome Electrical Appliances from 2017 to 2019, and the general manager of Gome Communications from October 2019 to the present.

Guo Chen has worked in the GOME system for nearly 20 years. According to the resume, Guo Chen joined Gome Electric Appliances in 2004, served as the deputy financial manager of Xinjiang Gome from January 2006 to February 2007, the assistant to the chief financial officer of Xinjiang Gome from February 2007 to August 2009, the chief financial officer of Gansu Gome from August 2009 to March 2011, and the chief financial officer of Xinjiang Gome from March 2011 to March 2020. He has been the Chief Financial Officer of GOME since April 27, 2020 and the Secretary of the Board of Directors of GOME since December 14, 2022.

In the Notice, the CSRC held that Dong Xiaohong, the then director, was also the legal representative of the main participants in the above-mentioned false trade business, such as Guangzhou Gome Trading Co., Ltd., Gome Electrical Appliance Co., Ltd., Gome Custom (Tianjin) Household Appliances Co., Ltd., Beijing Dazhong Household Appliances Chain Sales Co., Ltd., Tianjin Pengsheng Logistics Co., Ltd., etc., and should have known that the relevant trade business had no commercial substance, but Dong Xiaohong did not raise any objection to the recognition of the revenue of the relevant trade business. Signed the 2021 annual report and the 2020 non-public issuance of shares, Dong Xiaohong was not diligent and conscientious, and was other directly responsible.

Fang Wei, the chairman of the board of supervisors at the time, arranged the trading business on behalf of the major shareholder of Gome Communications, and should have been aware of the false trading business carried out by related parties under the same control, but Fang Wei did not raise any objection to the recognition of trading business revenue.

Shao Jie, then secretary of the board of directors, was responsible for information disclosure, and in the 2020 trade business contract approval process, Shao Jie paid attention to the issue of revenue recognition of trade business, but failed to take further measures, and finally did not raise any objection to the recognition of trade business revenue.

Soochow Securities was investigated

The reason why this matter is eye-catching is not only because a group of senior executives of Gome Communications under Huang Guangyu were severely punished, but also because Gome Communications was suspected of fraudulent issuance, and its sponsor, Soochow Securities (601555. SH) was placed under investigation.

On April 17, Soochow Securities disclosed that the company received the "Notice of Case Filing" from the China Securities Regulatory Commission (Zheng Jian Case No. 0382024051) on April 16, 2024. The content is: "Because your unit is suspected of failing to be diligent and conscientious in the sponsorship business of Gome Communications and Zixin Pharmaceutical's non-public issuance of shares, in accordance with the Securities Law of the People's Republic of China, the Administrative Punishment Law of the People's Republic of China and other laws and regulations, on April 8, 2024, I will decide to file a case against your unit." ”

An investor asked Soochow Securities: "How much is the company's investment banking business revenue? How much impact does this case have on the existing business? How many employees are currently in the investment banking department, and if the investment banking business is suspended, how much impact will it have on the company's daily operations? Are the four sponsor representatives involved in the two cases still working in the company, and how much is the total fee charged for sponsoring these two projects?"

Soochow Securities replied that the company will actively cooperate with the relevant work of the China Securities Regulatory Commission and fulfill its information disclosure obligations in strict accordance with regulatory requirements.

After the news was disclosed, the share price of Soochow Securities opened with a gap on April 17, falling by 3.53%, and once fell to the lowest price in 18 months of 6.02 yuan. On the same day, the stock closed at 6.28 yuan, with a total market value of about 31.2 billion yuan.