On the evening of April 19, China Nuclear Titanium Dioxide announced that it received a notice from Wang Zelong, the actual controller of the company, and learned that it received the "Notice of Case Filing" issued by the China Securities Regulatory Commission on April 12, 2024, due to suspected violations of restrictive provisions to transfer China Nuclear Titanium Dioxide's non-public issuance of shares in 2023, illegal information disclosure and other violations of laws and regulations, in accordance with the "Securities Law of the People's Republic of China", "Administrative Punishment Law of the People's Republic of China" and other laws and regulations, on March 13, 2024, the China Securities Regulatory Commission decided to file a case against it. For details, please refer to the "Announcement on the Actual Controller Receiving the Notice of Case Filing from the China Securities Regulatory Commission" (Announcement No.: 2024-018) disclosed by the Company on April 13, 2024.
On April 19, 2024, Mr. Wang Zelong, the actual controller of the Company, received the "Advance Notice of Administrative Punishment" (Penalty Zi [2024] No. 56) issued by the China Securities Regulatory Commission, and the relevant contents are hereby announced as follows:
According to the content of the "Advance Notice of Administrative Punishment", it was ascertained that in July 2022, the application for the non-public issuance of A-shares by CNNC Huayuan Titanium Dioxide Co., Ltd. (hereinafter referred to as CNNC Titanium Dioxide or listed company) was approved by the Issuance Examination Committee of the China Securities Regulatory Commission. From July to August 2022, CITIC CSI recommended a fixed long-short plan to Wang Zelong, the actual controller of CNNC Titanium Dioxide. According to the plan, "customers can directly realize fixed and short arbitrage through the OTC derivatives trading desk, settle the income in advance, and do not need to wait for a six-month lock-up period, and usually take more than a month to withdraw funds and income".
In September 2022, Wang Zelong decided to implement private placement arbitrage, lend securities through the employee stock ownership plan of CNNC Titanium Dioxide, and carry out OTC derivatives transactions with CITIC CSI in the name of an investment development company (hereinafter referred to as an investment company). Han Yuchen specifically implements the arbitrage plan and is responsible for connecting with CITIC CSI and CITIC Securities.
From September 2022 to February 2023, Wang Zelong and Han Yuchen negotiated with CITIC CSI and CITIC Securities to increase the arbitrage of securities lending, agreeing that the CNNC Titanium Dioxide Employee Stock Ownership Plan would lend 88 million shares of "CNNC Titanium Dioxide", CITIC CSI would designate four private equity fund product accounts to carry out hedging transactions of "CNNC Titanium Dioxide" stocks, and CITIC Securities would formulate a securities lending plan.
In November 2022, CITIC CSI conducted preliminary communication with Haitong Securities on the income swap business linked to the non-public issuance of shares of "CNNC Titanium Dioxide".
In December 2022, the compliance department and risk management committee of CITIC CSI reviewed and approved the application for OTC derivatives trading linked to the non-public offering of approximately 88 million shares of CNNC Titanium Dioxide. In the same month, it submitted the "Request for Instructions on the Notional Principal of 600 Million Yuan of OTC Options Linked to China Nuclear Titanium Dioxide Restricted Shares between an Investment Development Co., Ltd. and China Securities Capital" to the Risk Management Department and the Risk Management Committee of CITIC Securities for deliberation and approval.
In February 2023, due to the insufficient subscription funds of an investment company, in order to use up the quota of securities lending, Wang Zelong suggested that his friend Hong Haowei join the arbitrage trading of CNNC titanium dioxide fixed increase securities lending, and Hong Haowei participated in and carried out OTC derivatives trading with CITIC CSI in the name of a No. 1 private securities investment fund (hereinafter referred to as Fund No. 1).
From February 8 to February 10, 2023, the Derivatives and Trading Department of Haitong Securities included the "CNNC Titanium Dioxide" stock in the derivatives business alternative database with the internal approval of the department, and fulfilled the approval process for the company's seal of the subscription documents for the non-public offering of CNNC Titanium Dioxide. On February 10, 2023, Haitong Securities participated in the first round of quotation for CNNC's titanium dioxide non-public offering in accordance with the CITIC CSI order price and subscription amount, and the issue price was determined to be RMB 5.92 per share on the same day.
On February 16, 2023, Haitong Securities signed a share subscription agreement for the non-public issuance of shares of CNNC Titanium Dioxide, and entered into a long-term income swap with CITIC CSI linked to the underlying "CNNC Titanium Dioxide" stock, with a nominal principal of RMB 532 million and the corresponding number of shares of 89,864,900 shares, with full margin provided by CITIC CSI. On the same day, an investment company entered into a vanilla option portfolio contract with CITIC CSI, with a nominal principal of RMB 426 million and a corresponding number of shares of 71,959,500 shares, and Fund 1 entered into a vanilla option portfolio contract with CITIC CSI, with a nominal principal of RMB 89,039,800 and a corresponding number of shares of 15,040,500 shares.
From February 6 to February 20, 2023, an investment company and CITIC CSI reached a short income swap linked to the underlying "China Nuclear Titanium Dioxide" stock, with a total of 71.9595 million shares and a corresponding notional principal of 548 million yuan. From February 10 to February 20, 2023, Fund 1 entered into a number of short income swaps with CITIC CSI, with a total of 15.0405 million shares opened and a corresponding notional principal of 114 million yuan.
From February 6 to February 14, 2023, the 88 million shares of "CNNC Titanium Dioxide" held by the CNNC Titanium Dioxide Employee Stock Ownership Plan were allocated to four private equity fund product accounts in accordance with the path designated by CITIC CSI, and the lending period was extended and renewed until September 2023.
From February 13 to February 21, 2023, four private equity fund product accounts sold 88 million shares of "China Nuclear Titanium Dioxide" at an average price of about 7.63 yuan per share, with a turnover of about 671 million yuan.
Wang Zelong did not inform the listed company of the information that he actually participated in the non-public offering through the above-mentioned transaction arrangement. On February 24 and March 3, 2023, CNNC Titanium Dioxide announced a report on the issuance of non-public issuance of A shares, stating that there was no situation in which the actual controller of the issuer participated in the subscription of this issuance through direct or indirect means.
On March 9, 2023, CNNC Titanium Dioxide announced the listing of this non-public offering of shares, and the stock restriction period is from March 9 to September 8, 2023. From March 17 to April 6, 2023, an investment company and Fund 1 applied to CITIC CSI for early termination of all long vanilla option contracts and short income swap contracts, and CITIC CSI closed and settled the corresponding positions. In the end, Wang Zelong actually made a profit of RMB 58,161,993.37 through an investment company, Hong Haowei and Wang Zelong actually made a profit of RMB 14,193,879.43 and RMB 2,475,961 respectively through Fund No. 1, and CITIC CSI did not make an actual profit, with the income from CITIC Securities' securities lending business being RMB 1,910,680.83 and Haitong Securities' income from income swap business being RMB 789,445.21.
The above-mentioned illegal facts are proved by evidence such as inquiry records, transaction records, transaction confirmations, explanations, bank account statements, and announcements of listed companies.
The China Securities Regulatory Commission believes that: first, Wang Zelong and Hong Haowei's above-mentioned behavior, through derivatives trading arrangements, substantially participated in non-public offerings, and sold securities at market prices, locked in advance the income from the price difference between the discount price of non-public offering shares, and disguised circumvention of the provisions of the restriction period, in violation of Article 36 of the Securities Law of the People's Republic of China (hereinafter referred to as the "Securities Law") and Article 38, Paragraph 2 of the Administrative Measures for the Issuance of Securities by Listed Companies (revised in 2020), which constitutes the Securities Law Article 186: Illegal circumstances.
Second, CITIC CSI formulated an arbitrage plan, built a trading structure, and provided leveraged financial support for Wang Zelong and Hong Haowei's transfer of stocks in violation of restrictive regulations; CITIC Securities knew that the purpose of securities lending was to provide securities lending services for private placement, and cooperated with them to provide securities lending services; Haitong Securities subscribed for the non-public issuance of shares of CNNC Titanium Dioxide in its own name in accordance with the quotation instructions of CITIC CSI, and objectively helped CITIC CSI and its customers obtain stock returns, so that the private placement arbitrage behavior could be realized; and Han Yuchen came forward to implement the private placement arbitrage plan on behalf of Wang Zelong and others. The above-mentioned acts of CITIC CSI, CITIC Securities, Haitong Securities and Han Yuchen, together with Wang Zelong and Hong Haowei, constitute illegal circumstances under Article 186 of the Securities Law.
Third, in the process of Hong Haowei's transfer of shares in violation of the restrictive provisions, Wang Zelong participated in the negotiation of the arbitrage plan for increasing and financing securities, contacted and suggested that Hong Haowei join the arbitrage, and together with Hong Haowei, constituted an illegal circumstance under Article 186 of the Securities Law.
Fourth, Wang Zelong, as the actual controller of CNNC Titanium Dioxide, concealed his actual participation in the non-public offering through a series of trading arrangements during the non-public issuance of shares by CNNC Titanium Dioxide in 2023, resulting in false records in the report on the issuance of A shares related to CNNC Titanium Dioxide's non-public issuance of A shares, which violated the second paragraph of Article 78 of the Securities Law and Article 40 of the Administrative Measures for Information Disclosure of Listed Companies (revised in 2021), constituting an illegal situation under the second paragraph of Article 197 of the Securities Law.
Based on the facts, nature, circumstances and degree of social harm of the parties' illegal acts, the CSRC intends to decide:
1. In accordance with the provisions of Article 186 of the Securities Law, Wang Zelong, Hong Haowei, CITIC China Securities Capital Management Co., Ltd., CITIC Securities Co., Ltd., Haitong Securities Co., Ltd., and Han Yuchen were ordered to make corrections, given warnings, and confiscated 77,531,959.84 yuan of illegal gains, of which 60,637,954.37 yuan of Wang Zelong's illegal gains and 14,193,879.43 of Hong Haowei's illegal gains were confiscated RMB1,910,680.83 of CITIC Securities Co., Ltd.'s illegal gains and RMB789,445.21 of Haitong Securities Co., Ltd.'s illegal gains were confiscated;
A fine of RMB 120,000,000 was imposed on Wang Zelong for the joint illegal act of transferring shares in violation of the restrictive provisions with CITIC China Securities Capital Management Co., Ltd., CITIC Securities Co., Ltd., Haitong Securities Co., Ltd., and Han Yuchen, of which Wang Zelong was responsible for 50% or RMB 60,000,000, CITIC China Securities Capital Management Co., Ltd. was liable for 30% or RMB 36,000,000, and CITIC Securities Co., Ltd. was liable for 15%. RMB 18,000,000, with Haitong Securities Co., Ltd. bearing 4.5% or RMB 5,400,000 and Han Yuchen bearing 0.5% or RMB 600,000, and imposing a fine of RMB 35,000,000 on Hong Haowei and Wang Zelong, CITIC China Securities Capital Management Co., Ltd., CITIC Securities Co., Ltd., Haitong Securities Co., Ltd., and Han Yuchen for the joint illegal act of transferring shares in violation of the restrictive provisions, of which Wang Zelong was responsible for 30% or 10,500,000 RMB, CITIC China Securities Capital Management Co., Ltd. bears 30% or 10,500,000 yuan, Hong Haowei bears 20% or 7,000,000 yuan, CITIC Securities Co., Ltd. bears 15% or 5,250,000 yuan, Haitong Securities Co., Ltd. bears 4.5% or 1,575,000 yuan, and Han Yuchen bears 0.5% or 175,000 yuan.
2. In accordance with the provisions of Article 197, Paragraph 2 of the Securities Law, Wang Zelong was fined RMB 2,000,000 for his illegal act of information disclosure.
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Text/Beijing Youth Daily reporter Zhu Kaiyun
Editor/Fan Hongwei