Within a day, three listed state-owned enterprises were "hatted" for financial fraud

The new "National Nine Articles" strengthened supervision, and A-shares continued to hit new highs this year. Visual China / Figure

After the release of the new "National Nine Articles", the first batch of ST enterprises that "wore hats" due to financial fraud appeared.

On May 13, 2024, Huijin shares (300368. SZ), Strait Innovation (300300. SZ) and Special Information (000070.SZ) announced that they had received the "Administrative Penalty Decision", disclosing that there were false records in the previous annual reports. In addition, due to the seriousness of the falsification of the special information, the relevant personnel were banned from entering the securities market.

At the end of April, the Shanghai and Shenzhen stock exchanges revised the stock listing rules in accordance with the new "National Nine Articles", and both added a new ST circumstance, as long as the prior notice of administrative penalty shows that there are false records in the company's financial and accounting reports, even if the delisting standard is not touched, ST must be implemented. If the company completes the retrospective adjustment of the penalty matter and the administrative penalty decision has been made for one year, it may apply for the removal of the hat.

In other words, as long as a listed company is found to have committed financial fraud, no matter how minor the circumstances are, it will be ST. The above three companies announced on the same day that they were collectively suspended for one day, and the company's shares resumed trading from May 14, and the shares will be ST after the resumption of trading.

It is worth noting that the controlling shareholders of these three companies are all state-owned. The actual controller of Huijin shares is the Handan SASAC, the actual controller of Strait Innovation is the State-owned Assets Management Bureau of Pingtan Comprehensive Experimental Zone, and the special information is actually controlled by the Shenzhen SASAC.

Performance appraisal pressure

Zang Xiaoli, director of Beijing Shixue Law Firm, told Southern Weekend that there are three common motivations for financial fraud in listed SOEs: to avoid delisting, mergers and acquisitions, or subsidiaries to fulfill performance commitments, and the heads of state-owned enterprises to complete performance appraisal requirements.

Zang Xiaoli has been paying attention to the field of securities rights protection for many years, and has successively represented investors in filing securities civil claims against more than 50 illegal listed companies.

"The leaders of state-owned enterprises do not have access to a lot of personal wealth like the bosses of private enterprises, and the market value of enterprises is mainly due to the pressure of the leader's performance assessment." A brokerage source also explained to a reporter from Southern Weekend.

According to the brokerage person's observation, after the market came down from a high point in 2015, many state-owned platforms believed that it was a good time to buy listed companies, and they had a large amount of cash in hand, and they could get floating profits on the books from investment. But in the past two years, the situation has changed, and some floating profits have become floating losses. As market value management is to be included in the performance appraisal of the heads of central enterprises, the pressure on the heads of state-owned enterprises will only increase.

On January 24, 2024, the State Council Information Office held a press conference on focusing on enhancing core functions, enhancing core competitiveness, and better realizing the high-quality development of central enterprises. Xie Xiaobing, head of the Property Rights Administration Bureau of the State-owned Assets Supervision and Administration Commission, said that the State-owned Assets Supervision and Administration Commission will further study the inclusion of market value management in the performance appraisal of the heads of central enterprises.

According to the announcement, Huijin's 2021 annual report inflated the total profit by 15.2452 million yuan, and failed to disclose the major matters of the then director and general manager being placed in lien as required. The financial fraud of Straits Innovation and Tefa Information occurred in the acquired company.

From May 2018 to November 2020, Strait Innovation obtained the actual control of Zhejiang Good Medical Friends Medical Technology Co., Ltd. (hereinafter referred to as "Good Doctors") and included the latter in the scope of consolidated financial statements.

The Zhejiang Securities Regulatory Bureau found that from 2018 to 2019, in order to expand the scale of revenue, Good Doctor inflated its operating income by fictitious or fictitious consultation and consulting services, and arranged for third-party entities to cooperate with idling funds.

Specifically, the forms of fraud include increasing the number of patient consultation and consultation services, improving the level of patient consultation and consulting services, and recognizing income by giving free consultation and consulting services to patients at normal charges. These behaviors were instructed by Huang Henry, then chairman of Good Medical Friends, director and deputy general manager of Strait Innovation.

The above behavior led to the inflated operating income of 75.3369 million yuan in the 2018 annual report of Strait Innovation, accounting for 12.49% of the disclosed amount in the current period; In the 2019 semi-annual report, the operating income was inflated by 47.1227 million yuan, accounting for 17.17% of the disclosed amount in the current period.

The falsification of special information was the most serious among the three companies.

In April 2015, Tefa Information acquired 100% of the latter's shares from four shareholders of Shenzhen Tefa Dongzhi Technology Co., Ltd. (hereinafter referred to as Tefa Dongzhi) and set a performance commitment. From 2015 to 2019, in order to fulfill its performance commitments, TF Dongzhi falsely increased revenue, inflated or reduced operating costs and profits by adjusting operating costs across periods, fictitious business, etc., and falsified financial statements for five consecutive years.

At that time, the directors, general manager and deputy general manager of Tefa Dongzhi organized and planned the financial fraud, and the financial manager and cost accountant of Tefa Dongzhi participated in the implementation of financial fraud.

Involving 180,000 shareholders

After the resumption of trading on May 14, ST Huijin, ST Xiachuang and ST Texin all fell to the limit, and the three companies had 49,000, 30,000 and 100,000 shareholders respectively.

Zang Xiaoli said that investors affected by the financial fraud of the three companies have the right to file a claim against the listed company.

Her team has written an article analyzing that in the field of securities civil compensation, the legal basis for investors to claim compensation is mainly Articles 53, 55, 84 and 85 of the Securities Law.

According to the above article, in 2023, 169 A-share listed companies will issue announcements related to the filing and investigation, a new high in the past five years. In practice, the largest number of compensation cases were caused by misrepresentation. Almost all of the securities rights protection cases that were adjudicated in 2023 were disputes over liability for misrepresentation.

Zang Xiaoli said frankly that since the opening of China's securities civil litigation in 2002, investors' awareness of protecting their rights has been continuously improved, and relevant laws have also been continuously improved. However, objectively speaking, it is still difficult for investors to protect their rights.

The difficulty lies first in the long litigation cycle, "generally less than two years is considered short"; Secondly, it is difficult to determine the conditions for the claim supported by the court, for example, the time frame of the claim supported by the court is the period from the beginning of the listed company's illegal acts to the exposure of the illegal acts, and the exposure time is a point of dispute.

"Is it the day the administrative penalty document is disclosed, or the day the case is filed, or is it the day when the company discloses the accounting error?" Zang Xiaoli said that in practice, the enforcement standards of local courts are also different.

In addition, Zang Xiaoli said that there is also a risk that the defendant's business is in poor condition, and investors will not get money even if they win the lawsuit.

"The cost of violating the law for listed companies is too low." This view is held by industry insiders. Zang Xiaoli bluntly said that almost every week, listed companies are exposed to financial fraud, and in the face of a fine of one million yuan, listed companies must feel that fraud is cost-effective, "or should increase punishment to deter listed companies from violating laws and regulations."

According to the penalty decisions of the three companies, the Hebei Securities Regulatory Bureau decided to order Huijin to make corrections, give a warning, and impose a fine of 2 million yuan. The Zhejiang Securities Regulatory Bureau plans to decide to give a warning to Straits Innovation and impose a fine of 600,000 yuan, and to give a warning to four executives at the time and impose fines ranging from 200,000 to 300,000 yuan.

The Shenzhen Securities Regulatory Bureau intends to decide to give a warning to the special information and impose a fine of 8 million yuan; A fine ranging from $1 million to $4 million was imposed on the then executive. Due to the seriousness of the violation, the three senior executives of the special information were banned from the securities market for 6 to 10 years.

In addition, the company disclosed on the investor interactive platform that the company immediately corrected the financial fraud of the company and reported the case to the public security organ. At present, the case of four special Dongzhi personnel involved in financial fraud suspected of contract fraud and embezzlement has been transferred by the Public Security Bureau to the judicial department and has entered the prosecution stage.

Southern Weekly reporter Shi Xuan

Editor-in-charge: Feng Ye