In the first case in 2024, this company has been forced to delist due to major violations and has committed financial fraud for six consecutive years

Due to false records in the annual reports from 2014 to 2019, the company's shares were terminated by the Shenzhen Stock Exchange and delisted on April 18, 2024, which is the first case of forced delisting in 2024 due to major violations.

Source: Photo.com

In the first case in 2024, Xinhai will be forced to delist due to major violations

New Sea Retreat(002089. SZ) was listed in November 2006 and is deeply involved in the communication industry, and its main products include IDC data center products and lithium battery material products.

In recent years, the operating conditions of Xinhai Retreat have been less than ideal. From 2020 to 2022, the company's operating income will be 158.8323 million yuan, 235.1339 million yuan, and 175.7675 million yuan respectively, and the net profit will be -289.8992 million yuan, -41.7699 million yuan, and -301.9966 million yuan respectively. In addition, Xinhai Retirement expects that its operating income in 2023 will be 135 million yuan to 145 million yuan, the net profit loss attributable to the parent company will be 50 million yuan to 70 million yuan, and the net profit loss attributable to the parent company will be 55 million yuan to 75 million yuan after deducting non-profits.

In fact, Xinhai may have continued to lose money since 2016.

On February 2, 2024, Xinhaihui said on the investor interactive platform that the company has been trembling and walking on thin ice since it received the "Prior Notice of Administrative Punishment and Market Prohibition" on January 16, 2023.

On February 5, 2024, Xinhai Retirement officially received the "Administrative Penalty Decision" issued by the China Securities Regulatory Commission, according to the facts identified in the "Administrative Penalty Decision", Xinhai Retirement mainly inflated its sales revenue and profits from 2014 to 2019 by participating in the false self-circulation business of private network communication, and the company's net profit attributable to the owners of the parent company for three consecutive years from 2016 to 2018 should actually be negative, and the net profit after deducting non-recurring profits and losses in 2019 should also be negative, which has touched the situation of major illegal forced delisting. It is worth mentioning that this is the first case of forced delisting in 2024 with major violations.

The starting date of the delisting period is March 26, 2024, the delisting period is 15 trading days, and the last trading date is April 17, 2024, and it will be delisted on April 18.

Constructed a false sales cycle of private network communication business, and committed financial fraud for six consecutive years

According to the "Administrative Penalty Decision", in March 2014, Zhang Yibin, chairman of Xinhai, Sui Mouli, Zheng Moubin, Wu Mousen, Nie Moulong, Wu Mou, Hu Mouping and others invested in the establishment of Suzhou Xinhaiyi Information Technology Co., Ltd. (hereinafter referred to as Xinhaiyi Information) and Suzhou Xinhaiyi Electronic Technology Co., Ltd. (hereinafter referred to as Xinhaiyi Electronics) to carry out private network communication business. Xinhaiyi Information and Xinhaiyi Electronics are both subsidiaries of Xinhai.

The false production, processing, purchase and sale of the above-mentioned private network communication products, upstream and downstream, product determination, contract signing, fund payment, and false physical circulation were all controlled by Sui, and the related business constituted a false sales cycle. Although Xinhaihui and Xinhaiyi Electronics signed the corresponding purchase and sales contracts, it was not clear whether the products listed in the contracts had real uses, and there were false records in the main business disclosed to the public for the sale of hardware products.

From 2014 to August 31, 2019, Xinhaihui participated in the false self-circulation business of private network communication led by Sui Mouli by directly and establishing a subsidiary. There is no physical circulation of the private network communication business carried out by the headquarters of Xinhai Retreat, but only the circulation of contracts, documents and funds, and the income and profit generated by it are recognized as the sales revenue and profit of normal hardware products. Xinhaiyi Electronics inflated sales revenue and profits by participating in false self-circulation business. In September 2019, after Xinhaiyi Electronics was no longer included in the scope of Xinhaiyi's consolidated statements, Xinhaiyi inflated its profits in 2019 by confirming the investment income of Xinhaiyi's electronic private network communication self-circulating false business.

In addition, there were problems such as accounting error correction and processing errors, audit adjustment errors, and incomplete confirmation of estimated liabilities, which led to an overstatement of 25.8322 million yuan in total profit in 2019.

Specifically, due to its participation in the private network communication business and improper accounting treatment, the financial data of the annual report from 2014 to 2019 and the semi-annual report of 2019 were falsely recorded. Among them, in 2014, the sales revenue was inflated by 225 million yuan, the sales cost was inflated by 178 million yuan, and the total profit was inflated by 47 million yuan, in 2015, the sales revenue was inflated by 908 million yuan, the sales cost was inflated by 754 million yuan, and the total profit was inflated by 153 million yuan, in 2016, the sales revenue was inflated by 1.188 billion yuan, the sales cost was inflated by 1.039 billion yuan, and the total profit was inflated by 149 million yuan, in 2017, the sales revenue was inflated by 876 million yuan, the sales cost was inflated by 795 million yuan, and the total profit was inflated by 81 million yuan, and in 2018, the sales revenue was inflated by 420 million yuan, and the total sales cost was inflated348 million yuan, inflated total profit of 0.72 yuan, in the first half of 2019, inflated sales revenue of 124 million yuan, inflated sales cost of 103 million yuan, inflated total profit of 21 million yuan, and inflated total profit of 65 million yuan in 2019.

Regulators seek advice on delisting rules

In order to further deepen the reform, realize the pattern of orderly advance and retreat, timely clearance, and greater protection of the legitimate rights and interests of small and medium-sized investors, on April 12, the China Securities Regulatory Commission issued the "Opinions on the Strict Implementation of the Delisting System". On the same day, the Shanghai Stock Exchange and the Shenzhen Stock Exchange issued a draft of the new stock listing rules, focusing on three aspects: improving the financial listing indicators, strictly enforcing the delisting standards, and strengthening the hard constraints on cash dividends, and soliciting opinions from the public.

In terms of mandatory delisting criteria, the revision further improves the four categories of mandatory delisting indicators: financial, major violations, norms and transactions. Among them, the regulator has released a clear signal of "zero tolerance" and intensified the crackdown on financial fraud, and the amendment has greatly lowered the threshold for delisting of major illegal financial fraud.

In the current stock listing rules, the criterion for delisting from the stock market for financial fraud and material violations is "the total amount falsely recorded in two consecutive years reaches more than 500 million yuan, and exceeds 50% of the total amount disclosed in those two years". The Consultation Paper lowers the duration, amount and proportion of delisting due to financial fraud, and adds the circumstances of delisting due to financial fraud for three consecutive years or more.

Specifically, the standard of "amount of fraud + proportion of fraud" is revised to three levels: one year, two years, three years or more, and the specific standard is that the amount falsely recorded in one year reaches more than 200 million yuan and accounts for more than 30%, or the amount falsely recorded in two consecutive years reaches more than 300 million yuan and accounts for more than 20%, or there are false records in three consecutive years or more. The above-mentioned false entries include operating income, net profit, total profit and assets or liabilities in the balance sheet.