Reporter Luo Ji reports from Beijing
Medium nuclear titanium dioxide (002145. SZ) related parties violated the rules to reduce their holdings and arbitrage The investigation results were released a few days ago, and the penalties were implemented.
The China Securities Regulatory Commission (CSRC) intends to impose penalties on Wang Zelong, the actual controller of CNNC Titanium Dioxide, and his friend Hong, CITIC China Securities Capital Management Co., Ltd. (hereinafter referred to as "CITIC CSI"), CITIC Securities (600030. SH), Haitong Securities (600837. SH), Han Yuchen, the former secretary of the board of directors of CNNC Titanium Dioxide, ordered corrections, gave warnings, and confiscated illegal gains totaling about 77.532 million yuan. At the same time, Wang Zelong, Hong, CITIC CSI, CITIC Securities, Haitong Securities, and Han Yuchen were fined a total of 157 million yuan.
In this case, Wang Zelong illegally gained 60.638 million yuan and was fined 72.5 million yuan (including fines for violating information disclosure). The illegal income of CITIC Securities was about 1.9107 million yuan, and the illegal income of Haitong Securities was about 789,400 yuan. In terms of fines, CITIC CSI bore a total of 46.5 million yuan, CITIC Securities 23.25 million yuan, and Haitong Securities 6.975 million yuan.
Xu Feng, director of Shanghai Jiucheng Law Firm, told China Business Daily: "The nature of the violation in this case is relatively bad. In terms of the liability of fines, not only the illegal gains are considered, but also the amount of securities traded in violation of the law and the role of the illegal entity in the violation. In addition to regulatory forfeitures, there is also room for claims by eligible investors. ”
Tricks and routines involve multiple violations
Compared with the previous market speculation about the illegal reduction of holdings, the results of the CSRC's investigation are even more shocking.
In this case, CITIC Securities and Sun Company joined hands to "end up" and recommended arbitrage plans, built trading structures, and provided leveraged financial support for the actual controller of the listed company, Haitong Securities participated in the private placement quotation and subscription according to the order price, and the actual controller and the secretary of the board of directors of the listed company discussed, docked, executed and concealed the facts of the transaction, and disclosed the information in violation of regulations, etc., involving multiple violations of laws and regulations.
Specifically, in July 2022, CNNC's application for non-public issuance of A-shares was approved by the Issuance Examination Committee of the China Securities Regulatory Commission. In the same month, CITIC CSI recommended a fixed short and long term solution to Wang Zelong: "Customers can directly realize fixed 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." ”
According to the reporter, the core of the transaction structure of the scheme is the income swap business (a business that agrees to exchange cash flows for a specific target income and fixed interest rate within a certain period of time) and option contracts, and at the same time lends securities sources through the employee stock ownership plan and third-party cooperative brokerages to participate in the private placement, and finally realizes the arbitrage of illegal reduction.
From the perspective of arrangement, Wang Zelong first lent the source of securities through the employee stock ownership plan of China Nuclear Titanium Dioxide. Then, Wang Zelong carried out over-the-counter derivatives transactions with CITIC CSI in the name of an investment development company (hereinafter referred to as "an investment company") and a friend Hong in the name of a No. 1 private securities investment fund (hereinafter referred to as "No. 1 fund") to lock in the arbitrage framework. CITIC Securities provides securities lending services and obtains income from securities lending business. At the same time, in accordance with the instructions of CITIC CSI, Haitong Securities participated in the private placement of CNNC titanium dioxide, and reached a long income swap with CITIC CSI linked to the stock subject of "CNNC titanium dioxide", and Haitong Securities obtained the business income.
With the promotion of the fixed increase of China Nuclear Titanium Dioxide in February 2023, this illegal transaction has entered a "practical climax".
From February 8 to February 10, 2023, Haitong Securities first included the "CNNC Titanium Dioxide" stock in the derivatives business alternative library after relevant internal approvals. On February 10, 2023, Haitong Securities participated in the first round of quotation for the non-public offering of CNNC titanium dioxide 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. At that time, the market price of China Nuclear Titanium Dioxide was mainly above 7.5 yuan per share. Subsequently, on February 16, 2023, Haitong Securities signed a share subscription agreement and reached a long income swap with CITIC CSI linked to the underlying "CNNC Titanium Dioxide" stock, with a nominal principal of 532 million yuan and a corresponding number of 89,864,900 shares, which will be fully margined by CITIC CSI.
At the same time as the subscription of Haitong Securities, an investment company, Fund No. 1 and CITIC CSI reached a vanilla option portfolio contract, linked to the "China Nuclear Titanium Dioxide" stock, with a nominal principal of 426 million yuan and 89.0398 million yuan respectively, and the corresponding number of shares were 71.9595 million shares and 15.0405 million shares respectively.
Through this triple arrangement, Wang Zelong actually participated in the private placement and locked in the proceeds of the issuance discount price.
At the same time as the above activities were promoted, from February 6 to February 20, 2023, an investment company and Fund 1 reached a short income swap with CITIC CSI linked to the "China Nuclear Titanium Dioxide" stock (in the opposite direction of the above-mentioned long income swap), with a total of 71.9595 million shares and 15.0405 million shares, respectively, and the corresponding nominal principal was 548 million yuan and 114 million yuan respectively.
The 88 million shares of "CNNC Titanium Dioxide" held by the CNNC Titanium Dioxide Employee Stock Ownership Plan have also been successively allocated to four private equity fund product accounts in accordance with the path designated by CITIC CSI. 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.
Through these two arrangements, Wang Zelong pocketed the income between the fixed increase discount price and the market price in advance, and avoided the provisions of the restricted sale period.
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 the corresponding positions and settled them. In the end, Wang Zelong actually made a profit of about 58.162 million yuan through an investment company, and Hong and Wang Zelong actually made a profit of about 14.1939 million yuan and 2.476 million yuan respectively through Fund No. 1. CITIC CSI did not make any actual profits, with the income of CITIC Securities securities lending business of about 1.9107 million yuan and the income of Haitong Securities income swap business of about 789,400 yuan.
Heavy Penalty Agency
According to the investigation by the China Securities Regulatory Commission, CITIC Securities learned that the purpose of securities lending and borrowing was to provide securities lending services for the purpose of private placement arbitrage, and that CITIC CSI formulated arbitrage plans, built trading structures, and provided leveraged financial support for Wang Zelong and Hong's transfer of shares in violation of restrictive regulations; and 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, which objectively helped CITIC CSI and its customers obtain stock returns, so that the private placement arbitrage behavior could be realized. CITIC CSI, CITIC Securities, Haitong Securities, etc., constitute illegal circumstances.
However, Wang Zelong and Hong actually participated in the non-public offering through the derivatives trading arrangement, and sold them at the market price, locking in the income from the price difference between the discount price of the non-public offering of shares in advance, which is a disguised circumvention of the restriction period. At the same time, Wang Zelong also concealed his actual participation in the non-public offering through a series of trading arrangements, which constituted an illegal situation.
Accordingly, the China Securities Regulatory Commission decided to order corrections, give warnings, and confiscate a total of about 77.532 million yuan of illegal gains to Wang Zelong, the actual controller of China Nuclear Titanium Dioxide, and his friend Hong, CITIC Securities, CITIC Securities, Haitong Securities, and Han Yuchen.
In terms of fines, the SFC issued a total of three fines.
First, a fine of 120 million yuan was imposed on Wang Zelong and CITIC China Securities, CITIC Securities, Haitong Securities, and Han Yuchen for the joint illegal act of transferring shares in violation of restrictive provisions, of which Wang Zelong was to bear 50%, or 60 million yuan, CITIC China Securities to bear 30%, or 36 million yuan, CITIC Securities to bear 15%, or 18 million yuan, Haitong Securities to bear 4.5%, or 5.4 million yuan, and Han Yuchen to bear 0.5%, or 600,000 yuan.
Second, a fine of 35 million yuan was imposed on Hong and Wang Zelong, CITIC CSI, CITIC Securities, Haitong Securities, and Han Yuchen for the joint illegal act of transferring shares in violation of restrictive provisions, of which Wang Zelong bears 30% or 10.5 million yuan, CITIC CSI bears 30% or 10.5 million yuan, Hong bears 20% or 7 million yuan, CITIC Securities bears 15% or 5.25 million yuan, Haitong Securities bears 4.5% or 1.575 million yuan, and Han Yuchen bears 0.5% or 175,000 yuan.
Third, a fine of 2 million yuan was imposed on Wang Zelong for information disclosure violations.
At present, according to the regulations, the relevant parties have the right to be heard, to make a defense, and to request a hearing. CITIC Securities said: "The company and its grandson company, CITIC CSI, sincerely accept the punishment and will deeply reflect on it and earnestly implement the rectification." Haitong Securities also expressed its sincere acceptance of the punishment and will further optimize the compliance and internal control mechanism and continuously improve the awareness and level of standardized operation.
It can be seen that in terms of the burden of illegal gains and fines, the institutions make limited profits, but the fines are high.
Xu Feng mentioned: "In terms of the nature of the violation, there are relatively few cases of illegal reduction and arbitrage that have been exposed, and such penalties are not many. At the same time, the nature of the violation in the past case of 'detour reduction and reduction' is relatively minor, and the nature of the violation in this case is relatively bad compared with the case of the actual controller of the listed company, institutional investors and relevant intermediaries 'jointly harvesting' small and medium-sized investors. Therefore, the amount of the fine not only takes into account the illegal gains, but also mainly considers the amount of securities traded in violation of the law and the role of the illegal entity in the violation. ”
Further increase the cost of violating the law
At present, what worries the market even more is that this kind of case may not be an isolated case. So, will the regulators conduct a more general back-check?
Xu Feng mentioned: "The core of this violation is that it completely ignores the existence of the law and has no respect for small and medium-sized investors and the capital market. If this kind of behavior is secretly widely adopted, then it is conceivable how serious the damage to the rights and interests of investors will be. In the past, there were many rumors, but when the case was actually landed, it was still shocking, and it was necessary to initiate an investigation into similar violation cases. ”
Lin Xianping, former deputy secretary-general of the Civil and Commercial Committee of the China Legal Consultation Center, said: "For intermediaries, this case is a profound warning that securities firms should pay more attention to business compliance and their own professional ethics. At present, the regulatory authorities are continuously strengthening the supervision of securities firms and increasing the penalties for violations. For all kinds of shareholders, in recent years, the system of strictly regulating the actual controllers and major shareholders of listed companies has been continuously improved, and various systems for protecting small and medium-sized investors and maintaining market fairness have been introduced one after another, which has also laid the foundation for the benign development of the capital market. ”
It is worth noting that at the same time as the illegal operations in the above cases occurred, on February 24 and March 3, 2023, China Nuclear Titanium Dioxide announced a report on the issuance of non-public issuance of A shares, stating: "There is no situation in which the actual controller of the issuer participates in the subscription of this issuance through direct or indirect forms in this non-public offering."
CITIC Securities is also the joint lead underwriter of CNNC's titanium dioxide non-public offering of A-shares. In accordance with relevant laws and regulations and the relevant requirements of the China Securities Regulatory Commission, it conducted a prudent review of the issuance process of the above-mentioned issuance and the compliance of the subscription object, and issued a report on the compliance of the issuance process and the subscription object.
Xu Feng mentioned that in addition to regulatory penalties, there is also room for claims from qualified investors based on the misrepresentation caused by the failure to disclose the illegal reduction of holdings and the misrepresentation caused by the actual controller's participation in the non-disclosure of the private placement. Article 84 of the Securities Law stipulates that if an issuer and its controlling shareholders, actual controllers, directors, supervisors, senior managers, etc. make public commitments, they shall disclose them. If the failure to fulfill the commitment causes losses to the investor, it shall be liable for compensation in accordance with law. Article 85 stipulates that if the information disclosure obligor fails to disclose information in accordance with the regulations, or if there are false records, misleading statements or material omissions in the securities issuance documents, periodic reports, interim reports and other information disclosure materials announced, resulting in losses suffered by investors in securities transactions, the information disclosure obligor shall be liable for compensation. In addition, according to Article 163 of the Securities Law, if a securities service institution produces or issues a document that contains false records, misleading statements or material omissions, causing losses to others, it shall be jointly and severally liable with the client for compensation. In the subsequent litigation process, individual intermediaries acting as sponsors and underwriters may be co-defendants and required to bear joint and several liability. ”