Source: China Economic Network
China Economic Network Beijing, September 28, 2021 The administrative penalty decision ([2021] No. 9) published on the website of the Shandong Regulatory Bureau of the China Securities Regulatory Commission yesterday shows that after investigation, the party Xu Runyin acquired 100% of Shandong Freda Pharmaceutical Group Co., Ltd. (hereinafter referred to as "Freda Pharmaceutical") at Lushang Health Industry Development Co., Ltd. (hereinafter referred to as "Lushang Development", 600223.SH, the company's original name is Lushang Real Estate Co., Ltd., referred to as "Lushang Real Estate") During the equity matter, he was punished by the CSRC for insider trading in Lushang Development shares.
Lushang Development and Freda Pharmaceutical are both companies controlled by Shandong Commercial Group (hereinafter referred to as "Lushang Group"). On September 7, 2018, Lushang Group preliminarily agreed on the acquisition of Freda Pharmaceutical by Lushang Development and invited the intermediary to enter Freda Pharmaceutical on September 11, 2018 to carry out due diligence work.
On October 8, 2018, Lushang Group determined that the acquisition method would be to exchange the equity of the three subsidiaries held by Lushang Development with the equity of Freda Pharmaceutical, and on December 5, 2018, Lushang Development issued the "Announcement of Lushang Real Estate Co., Ltd. on the Transfer of 100% Equity and Related Party Transactions of Shandong Freda Pharmaceutical Group Co., Ltd.", which intends to exchange 97% of the equity of Taian Ginza Real Estate Development Co., Ltd. and 100% of the equity of Dongying Ginza Real Estate Development Co., Ltd. Jining Lushang Real Estate Co., Ltd. 100% equity and part of the cash payment to lushang group held by the lushang group to 100% of the equity of freda pharmaceuticals.
The CSRC ruled that the information on Lushang Development's acquisition of 100% of the equity of Freda Pharmaceutical was a major event stipulated in the second paragraph of Article 67 of the Securities Law in 2005 and was inside information as stipulated in the first paragraph of article 75, paragraph 2, and item 1 of the Securities Law of 2005. Inside information was formed on September 7, 2018 and made public on December 5, 2018.
Xu Moufeng, then chief financial officer of Freda Pharmaceuticals, attended the meeting on September 7, 2018, and was an insider of the inside information, and the time of knowledge of the inside information was September 7, 2018. Xu Run and Xu Moufeng are more familiar. Due to the loan matter, Xu Run had a phone call and met with Xu Moufeng on November 12 and 13, 2018.
Xu Run's account was opened on March 28, 2008, and there were no stock transaction records from 2017 to the end of October 2018. From November 12, 2018 to November 14, 2018, 1.84 million yuan was transferred to the funds, of which 1.59 million yuan came from Xu Run's family funds and 250,000 yuan came from loans from Xu Moufeng, an insider. From November 12, 2018 to November 19, 2018, Xu Run operated his account to buy 664,500 shares of Lushang Development shares, with a transaction amount of 2.0469 million yuan, of which the single transaction amount on November 14 was 999,700 yuan, and the transaction amount was significantly enlarged, accounting for 100% of the current period of purchase. 66,100 shares were sold on November 16, and all were sold from December 7 to December 13. On December 17, Xu Run transferred 250,000 yuan to Xu Moufeng's account. After calculation, the profit of the aforementioned transaction was 141,400 yuan.
Xu Run's above-mentioned conduct violated the provisions of Article 73 and Article 76, Paragraph 1 of the 2005 Securities Law, and constituted insider trading as described in Article 202 of the 2005 Securities Law. Based on the facts, nature, circumstances and degree of social harm of the parties' illegal acts, and in accordance with the provisions of Article 202 of the Securities Law of 2005, the Shandong Supervision Bureau decided to confiscate Xu Run's illegal gains of 141,400 yuan and impose a fine of 141,400 yuan.
Through the inquiry of the reporter of China Economic Network, it was found that Lushang Development was listed on the Shanghai Stock Exchange on January 13, 2000. The company's 2021 semi-annual report shows that Freda Pharmaceutical is a wholly-owned subsidiary of the company.
According to the Announcement of Lushang Real Estate on the Transfer of 100% Equity interest in Shandong Freda Pharmaceutical Group Co., Ltd. and Related Party Transactions, the Company intends to transfer 100% of the equity of Shandong Freda Pharmaceutical Group Co., Ltd. held by Shandong Commercial Group Co., Ltd., and the transaction price is determined to be 927 million yuan based on the appraisal value. The Company held 97% of the equity of Tai'an Ginza Real Estate Development Co., Ltd., 100% of the equity of Dongying Ginza Real Estate Development Co., Ltd. and 100% of the equity of Jining Lushang Real Estate Co., Ltd. based on the appraisal value of 806 million yuan, and the difference of 121 million yuan was paid in cash. The transaction constitutes a related party transaction and does not constitute a material asset restructuring. The main financial data of Shandong Freda Pharmaceutical Group Co., Ltd., which was audited by Zhongtianyun Accounting Firm (Special General Partnership), for the most recent year and period are as follows:
On August 26, 2021, the Administrative Penalty Decision ([2021] No. 5, 6 and 7) published by the Shandong Regulatory Bureau of the China Securities Regulatory Commission showed that Zhang Ze, then deputy director of the Office of Freda Pharmaceutical, Zhu Guangyu, then director of the Audit and Legal Affairs Department of Lushang Development, and his wife Zhang Beibei, Xu Xiufeng, then financial director of Frederda Pharmaceutical, and his girlfriend Pei Aiyuan were punished by the CSRC for insider trading in Lushang Development shares during the acquisition of Freda; on September 10, 2021, According to the administrative penalty decision ([2021] No. 8) published by the Shandong Supervision Bureau, Feng Bin, then general manager of the metal material branch of Lushang Property Co., Ltd., was punished by the CSRC for insider trading in Lushang Development shares.
Article 67 of the 2005 Securities Law stipulates that when a major event occurs that may have a greater impact on the trading price of the listed company's stock, and investors have not yet learned of it, the listed company shall immediately submit an interim report on the situation of the major event to the securities regulatory authority under the State Council and the stock exchange, and make an announcement explaining the cause, current status and possible legal consequences of the event.
The following circumstances are major events as referred to in the preceding paragraph:
(1) Major changes in the company's business policy and business scope;
(2) the company's major investment behavior and major decisions on the acquisition of property;
(3) the conclusion of important contracts by the company may have a significant impact on the company's assets, liabilities, equity and operating results;
(4) The default of the company in incurring major debts and failing to pay off major debts as they become due;
(5) The company incurred major losses or major losses;
(6) Major changes in the external conditions of the company's production and operation;
(7) There is a change in the directors, more than one-third of the supervisors or managers of the company;
(8) Shareholders or actual controllers who hold more than 5% of the company's shares, and the circumstances in which they hold shares or control the company have undergone a major change;
(9) Decisions on capital reduction, merger, division, dissolution and bankruptcy application of the company;
(10) Major litigation involving the company, where the resolutions of the shareholders' general meeting and the board of directors are revoked or declared invalid in accordance with law;
(11) The company is suspected of committing a crime and is investigated by the judicial organs, and the directors, supervisors and senior management personnel of the company are suspected of committing crimes and are taken compulsory measures by the judicial organs;
(12) Other matters prescribed by the securities regulatory authority under the State Council.
Article 75 of the 2005 Securities Law stipulates that information that has not yet been disclosed in securities trading activities that involves the company's operations, finances or has a significant impact on the market price of the company's securities is inside information.
The following information is inside information:
(1) Major events listed in the second paragraph of Article 67 of this Law;
(2) the company's plan to distribute dividends or increase capital;
(3) major changes in the company's shareholding structure;
(4) Major changes in the company's debt guarantee;
(5) Mortgage, sell or scrap more than 30% of the company's main assets for business purposes at one time;
(6) The acts of the company's directors, supervisors and senior management personnel may bear the liability for compensation for major damages in accordance with law;
(7) Relevant plans for acquisitions by listed companies;
(8) Other important information determined by the securities regulatory authority under the State Council that has a significant impact on the trading price of securities.
Article 73 of the 2005 Securities Law prohibits insiders of securities transactions and persons who illegally obtain insider information from using insider information to engage in securities trading activities.
Article 76 of the 2005 Securities Law stipulates that insiders of securities transactions and persons who illegally obtain insider information shall not buy or sell the company's securities, or disclose the information, or advise others to buy or sell the securities before the insider information is made public. Where natural persons, legal persons or other organizations that hold or jointly hold more than 5% of the shares of a company with others through agreements or other arrangements acquire shares of a listed company, otherwise provided for in this Law, those provisions shall apply. Where insider trading causes losses to investors, the actor shall bear the liability for compensation in accordance with law.
Article 202 of the Securities Law of 2005 stipulates that if a person who is in the possession of insider information in a securities transaction or who illegally obtains the insider information buys or sells the securities, or discloses the information, or suggests that others buy or sell the securities before the disclosure of information involving the issuance, trading or other information that has a major impact on the price of the securities, shall be ordered to dispose of the illegally held securities in accordance with the law, confiscate the illegal gains, and impose a fine of not less than one time but not more than five times the illegal gains; A fine of between 30,000 and 600,000 yuan shall be imposed. Where a unit engages in insider trading, it shall also give a warning to the directly responsible supervisors and other directly responsible personnel, and impose a fine of between 30,000 and 300,000 yuan. Where the staff of the securities regulatory authority engages in insider trading, a heavier punishment shall be imposed.
The following is the original text:
Decision on Administrative Penalties of Shandong Regulatory Bureau of China Securities Regulatory Commission ([2021] No. 9)
[2021] No. 9
Party: Xu Run, female, born in May 1970, address: Tianqiao District, Jinan City, Shandong Province.
In accordance with the relevant provisions of the Securities Law of the People's Republic of China (hereinafter referred to as the 2005 Securities Law), which was amended in 2005, our bureau conducted a case investigation and trial of Xu Run's insider trading "Lushang Real Estate", and informed the parties of the facts, reasons, basis for the administrative punishment and the rights enjoyed by the parties in accordance with the law. The parties did not submit statements, defense opinions, or request a hearing. The case has now been investigated and the trial has been concluded.
After investigation, Xu Run had the following illegal facts:
1. Inside information and its formation process
The listed company Lushang Real Estate Co., Ltd. (hereinafter referred to as Lushang Real Estate, now renamed Lushang Health Industry Development Co., Ltd.) and Shandong Freda Pharmaceutical Group Co., Ltd. (hereinafter referred to as Freda Pharmaceutical) are both companies controlled by Shandong Provincial Commercial Group (hereinafter referred to as Lushang Group). On September 7, 2018, Lushang Group convened a promotion meeting of Lushang Real Estate, Freda Pharmaceutical and the relevant personnel of the securities company, and preliminarily agreed that Lushang Real Estate would acquire Freda Pharmaceutical, hire an intermediary agency to carry out due diligence work, and then formulate a specific acquisition plan according to the results of the due diligence. After the meeting, Lushang Group set up a working group to promote specific work.
On September 11, 2018, the intermediary agency entered Freda Pharmaceutical to carry out due diligence work.
On October 8, 2018, Lushang Group once again convened a meeting of Lushang Real Estate, Freda Pharmaceutical and related intermediaries to determine that the acquisition method was to exchange the equity of the three subsidiaries held by Lushang Real Estate and the equity of Freda Pharmaceutical.
On October 10, 2018, the board of directors of Freda Pharmaceutical co., Ltd. deliberated and approved the "Asset Divestiture Plan of Shandong Freda Pharmaceutical Group Co., Ltd.", which intends to divest 9 proprietary companies with weak relevance to the main business, insufficient profitability or basically stopped business from Freda Pharmaceutical, and submitted a request to Lushang Group. On October 18, Lushang Group held a board meeting to deliberate and approve the plan.
On November 20, 2018, the auditor completed the audit report; on November 30, the appraisal agency completed the assessment report.
On December 4, 2018, Lushang Group held a party committee, board of directors and office meeting to deliberate and pass the "Proposal on the Asset Replacement Plan of Shandong Commercial Group Co., Ltd. and Lushang Real Estate Co., Ltd.", and the board of directors of Lushang Real Estate held a board of directors to deliberate and pass the "Proposal on the Transfer of 100% Equity and Related Party Transactions of Shandong Freda Pharmaceutical Group Co., Ltd."
On December 5, 2018, Lushang Real Estate issued the Announcement of Lushang Real Estate Co., Ltd. on the Transfer of 100% Equity Interest in Shandong Freda Pharmaceutical Group Co., Ltd. and Related Party Transactions, in which Lushang Real Estate intends to acquire 100% of the equity of Freda Pharmaceutical held by Lushang Group by virtue of its 97% equity interest in Tai'an Ginza Real Estate Development Co., Ltd., 100% equity in Dongying Ginza Real Estate Development Co., Ltd., 100% equity in Jining Lushang Real Estate Co., Ltd. and part of the cash payment.
The information on Lushang Real Estate's acquisition of 100% of the equity of Freda Pharmaceutical held by Lushang Group is a major event stipulated in Item 2 of Article 67, Paragraph 2, Item 2 of the Securities Law of 2005, "The Company's Major Investment Behavior and Major Decision on The Acquisition of Property", and is inside information as stipulated in Article 75, Paragraph 2, Item 1 of the Securities Law of 2005. Inside information was formed on September 7, 2018 and made public on December 5, 2018.
Xu Moufeng, then chief financial officer of Freda Pharmaceuticals, attended the meeting on September 7, 2018, and was an insider of the inside information, and the time of knowledge of the inside information was September 7, 2018.
2. Xu Run's use of the "Xu Run" account for insider trading "Lushang Real Estate"
(1) Before the disclosure of insider information, Xu Run shall contact and contact the person who is in the know of the insider information
Xu Run and Xu Xiufeng are more familiar. Due to the loan, Xu Run had a phone call and met with Xu Xiufeng on November 12 and 13, 2018.
(2) Before the disclosure of inside information, Xu Run's behavior in trading "Lushang Real Estate" was obviously abnormal and there was no legitimate reason
The "XuRun" account was opened on March 28, 2008, and there were no stock transaction records from 2017 to the end of October 2018. From November 12, 2018 to November 14, 2018, 1.84 million yuan was transferred to the funds, of which 1.59 million yuan came from Xu Run's family funds and 250,000 yuan came from loans from Xu Moufeng, an insider. From November 12, 2018 to November 19, 2018, Xu Run operated the "Xu Run" account to place orders to buy 664,500 shares of "Lushang Real Estate", with a transaction amount of 2,046,882 yuan, of which the single transaction amount on November 14 was 999,706 yuan, and the transaction amount was significantly enlarged, accounting for 100% of the current purchase. 66,100 shares were sold on November 16 and all sold from December 7 to December 13. The above trading situation is obviously different from the usual trading habits. On December 17, Xu Run transferred 250,000 yuan to Xu Moufeng's account. In summary, the behavior of "Xurun" account trading "Lushang Real Estate" is obviously abnormal, which is highly consistent with the inside information, and XuRun's above-mentioned abnormal transaction situation has no legitimate reason or legitimate source of information. After calculation, the profit of the aforementioned transaction was RMB141,434.33.
The above-mentioned illegal facts are proved by evidence such as Lushang Real Estate Announcement, Interrogation Record, Securities Account Information, Transaction Flow, Bank Account Information, etc., which are sufficient to determine.
The above-mentioned acts of Xu Run violated the provisions of Article 73 and Article 76, Paragraph 1 of the 2005 Securities Law, and constituted insider trading as described in Article 202 of the 2005 Securities Law.
Based on the facts, nature, circumstances and degree of social harm of the parties' illegal acts, and in accordance with the provisions of Article 202 of the Securities Law of 2005, our bureau decides:
Xu Run's illegal gains of RMB141,434.33 were confiscated and a fine of RMB141,434.33 was imposed.
The above-mentioned parties shall, within 15 days from the date of receipt of this penalty decision, remit the fine to the bank opening the account of the China Securities Regulatory Commission: the Business Department of the Beijing Branch of China CITIC Bank, account number: 7111010189800000162, and the joint bank number: 302100011106, and the bank shall directly hand over the fine to the State Treasury, and send a copy of the payment voucher with the name of the party to the Office of the Administrative Punishment Committee of the China Securities Regulatory Commission and the Shandong Securities Regulatory Bureau for the record. If the parties concerned are dissatisfied with this penalty decision, they may apply to the China Securities Regulatory Commission for administrative reconsideration within 60 days of receiving this penalty decision, or they may directly file an administrative lawsuit with the people's court with jurisdiction within 6 months from the date of receipt of this penalty decision. During the period of reconsideration and litigation, the implementation of the above-mentioned decision shall not be suspended.
Shandong Regulatory Bureau of China Securities Regulatory Commission
September 26, 2021