Evergrande Real Estate endured a record fine, and Xu Jiayin lost the ticket to the securities market forever!

Sankei direct hit

2024-06-03 02:05Published in Guangdong

The Evergrande real estate case fine was officially landed.

After a lapse of two months, following the prior notice of administrative punishment and market ban disclosed by Evergrande Real Estate on March 18, the China Securities Regulatory Commission (CSRC) recently officially issued an administrative penalty decision to impose final penalties on Evergrande Real Estate for fraudulent issuance and illegal information disclosure in the exchange bond market.

According to the fines, the first is to order Evergrande Real Estate to make corrections, give a warning, and impose a fine of 4.175 billion yuan; second, Xu Jiayin is given a warning and imposed a fine of 47 million yuan; third, Pan Darong is given a warning and fined 9 million yuan; fourth, Pan Hanling is given a warning and fined 7.5 million yuan; fifth, Ke Peng is given a warning and fined 2.8 million yuan; sixth, Zhen Litao is fined 2 million yuan; and seventh, Qian Cheng is warned and fined 200,000 yuan.

It was found that Evergrande Real Estate cited the relevant data of the 2019 and 2020 annual reports with false records in the 5 bond issuance documents with a total of 20.8 billion yuan, which were suspected of fraudulent issuance.

"The circumstances are serious and the nature is very heinous"

Over the past two years, the news of Evergrande and Xu Jiayin, like the bloody plot in a TV series, has touched everyone's hearts: Xu Jiayin "jumped off the building"? Xu Jiayin was arrested...... This time, it was Xu Jiayin who was punished.

On May 31, the website of the China Securities Regulatory Commission announced that it made an administrative penalty decision on the illegal case of fraudulent issuance and information disclosure of Evergrande real estate bonds in accordance with the law, ordered Evergrande Real Estate to make corrections, gave a warning and fined 4.175 billion yuan, and imposed a maximum fine of 47 million yuan on Xu Jiayin, the then chairman and actual controller of Evergrande Real Estate, and took a lifetime ban on the securities market.

To put it simply, Evergrande Real Estate inflated its revenue and profits by recognizing revenue in advance, resulting in fraudulent practices in the bonds it issued. The amount of money involved in this fraud is huge, such as Evergrande Real Estate's fraudulent issuance of a total of 20.8 billion yuan of bonds between May 2020 and April 2021.

In addition, Evergrande Real Estate has not disclosed the 2021 annual report, 2022 interim report and 2022 annual report in accordance with the regulations, failed to disclose the situation of major litigation and arbitration in accordance with the regulations, and failed to disclose the failure to pay off the debts due as required. In terms of wording, in addition to the use of a maximum fine, the penalty decision used terms such as "the means are particularly heinous and the circumstances are particularly serious" against Xu Jiayin, the chairman of the board of directors at the time.

As soon as the punishment decision came out, the Internet exploded. Some netizens left a message, "This fine is a bit small." "In fact, through layers of equity penetration, it can be seen that behind Evergrande Real Estate is China Evergrande, a Hong Kong-listed company, and behind China Evergrande stands the BVI (British Virgin Islands) company." The CSRC has a standard for every kind of fine, and it is not just a matter of just opening a high price. Some of Evergrande Real Estate's behaviors are not carried out in China, and the CSRC cannot punish them. Huang Lichong, president of Huisheng International Capital, who is familiar with domestic and international laws, told "City Boundary".

This time, the punishment is aimed at the illegal acts of Evergrande Real Estate's domestic bond market, and does not involve the risk matters of other sectors of Evergrande Group. Song Xiang lamented to the "City Boundary" that the securities market is a place of integrity, and Evergrande Real Estate has not only harmed the interests of investors, but also seriously disrupted the market order. "The CSRC's punishment this time is also a warning to other companies."

Along with Evergrande Real Estate and Xu Jiayin, there are also former Evergrande executives, such as Pan Darong, Pan Hanling, Qian Cheng, etc., who have been punished and warned to varying degrees, with fines ranging from 200,000 yuan to 9 million yuan. After reading the full text of the administrative penalty decision, "City Boundary" found that in addition to Evergrande Real Estate and Qian Cheng, Xu Jiayin, Pan Darong and others all put forward statements and defense opinions.

Taking Xu Jiayin as an example, he stated five points in his defense opinions, one of which was that "the relevant illegal acts were specifically organized and carried out by others, and there was insufficient evidence to determine that Xu Jiayin instructed and organized the illegal acts, nor did he instruct others to engage in illegal acts based on his identity as the actual controller." However, the CSRC believes that the evidence on record is sufficient to prove that Xu Jiayin, as the chairman and actual controller of Evergrande Real Estate, arranged and organized financial fraud.

In the end, the CSRC rejected the statements and defenses of Xu Jiayin and others. At this point, the dust has settled on the punishment case. It is worth noting that the CSRC also mentioned in the penalty letter that because Xia Haijun could not be contacted, the announcement service procedure had been initiated, and he would be dealt with separately in accordance with the law.

Xia Haijun is the No. 2 person in Evergrande Group, and he is also recognized as "the most trusted man by Xu Jiayin" within Evergrande. Since Xu Jiayin was controlled, Ke Peng, Du Liang, Pan Darong and other Evergrande executives have been taken away one after another, and Xia Haijun has not been heard from at all. Even in May this year, Xia Haijun was publicly reprimanded by the Shenzhen Stock Exchange, a key figure in Evergrande Group, is still in a state of disconnection.

For two consecutive years, financial fraud and inflated profits totaled 92 billion

Different from the financial fraud methods of purely fictitious business and income, Evergrande Real Estate violated accounting standards and whitewashed its financial statements by recognizing revenue in advance and overdrawing its future income.

In 2019, Evergrande Real Estate inflated its revenue by 213.989 billion yuan, accounting for 50.14% of the current operating income, and inflated its profit by 40.722 billion yuan, accounting for 63.31% of the total profit in the current period.

In 2020, Evergrande Real Estate inflated its revenue by 350.157 billion yuan, accounting for 78.54% of the current operating income, and inflated its profit by 51.289 billion yuan, accounting for 86.88% of the total profit in the current period.

Based on the inflated performance of the above two years, the total inflated profit reached 92.011 billion yuan.

As a result, between 2020 and 2021, Evergrande Real Estate used false financial data in its 2019 and 2020 annual reports to publicly issue five tranches of bonds totaling 20.8 billion yuan to qualified investors in the exchange market, which was fraudulently issued. At the same time, Evergrande Real Estate, as a bond issuer, publicly disclosed false records in the 2019 and 2020 annual reports. In addition, Evergrande Real Estate also failed to disclose periodic reports on time, failed to disclose major litigation and arbitration as required, and failed to disclose the failure to pay off due debts as required.

Organized and systematic financial fraud

Through the fine, Evergrande Real Estate's main fraud methods were exposed.

According to the penalty decision of the China Securities Regulatory Commission, the financial fraud of Evergrande Real Estate was carried out by the relevant functional departments of the company, and the company's headquarters and the project company were promoted as a whole, and the means of fabricating important facts such as modifying and adjusting the delivery list of the current year and modifying the delivery time of the Mingyuan system were adopted, which involved a wide range and a large amount of fraud.

Evergrande Real Estate disguised the company's actual financial situation by whitewashing the financial statements, and disclosed false information to investors or did not disclose information in accordance with regulations as a bond issuer, which involved a huge amount of money and bad means, resulting in serious consequences of default on existing bonds.

Intermediary investigations are ongoing

In the Evergrande Real Estate case, a number of intermediaries were involved, including China Securities Construction Investment, China Chengxin International, PricewaterhouseCoopers and King & Wood Mallesons. The reporter learned that the China Securities Regulatory Commission is actively investigating the relevant intermediaries, and the results of the investigation will be announced after the investigation is completed.

In the previous case of fraudulent issuance of corporate bonds in the country, "Wuyang Bond Case". Debang Securities, as the lead underwriter and bond trustee of the bonds issued by Wuyang Construction, had "stepped on thunder" due to the case and fell into compensation quagmire and litigation disputes. Debang Securities was ordered by the China Securities Regulatory Commission to make corrections, given a warning, confiscated 18.57 million yuan of illegal gains, and imposed a fine of 550,000 yuan, with a total fine of 19.1244 million yuan, while the project leaders Zhou Chengwei and Cao Rong were given warnings and fined 250,000 yuan respectively, and their securities practice qualifications were revoked. And this penalty was the top penalty imposed by the CSRC at that time. In the subsequent judicial decision, in addition to the bond issuer "Wuyang Construction", which was liable for compensation, other intermediaries related to the issuance of "Wuyang Bonds", including securities firms, law firms, accounting firms, rating agencies, etc., were also spared and assumed corresponding responsibilities.

As an important channel for direct financing of enterprises, the exchange bond market plays an important role in reducing the financing cost of enterprises, improving financing efficiency and strengthening market constraints.

The relevant person of the China Securities Regulatory Commission said that while enjoying the convenience of financing, bond issuers should respect the rule of law, effectively enhance market awareness, awareness of the rule of law and investor protection awareness, financial fraud, false statements and other illegal acts that maliciously damage the rights and interests of investors will be severely punished by law. The China Securities Regulatory Commission (CSRC) will continue to crack down on illegal securities and futures activities in accordance with the law, and take comprehensive measures to improve the ability to discover, improve the working mechanism, strengthen accountability, and highlight the combination of crackdown and prevention, so as to continuously eradicate the breeding ground for counterfeiting, and resolutely ensure that regulatory law enforcement is "long teeth and thorns", with edges and corners, so as to effectively safeguard the foundation of market integrity and protect the legitimate rights and interests of investors.

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