China Merchants Securities (600999.SH) may not have imagined that the impact of a restructuring project violation 10 years ago is still spreading today.
On October 11, China Security Branch (600654.SH) announced that China Merchants Securities, as an independent financial adviser for the company's major asset restructuring, failed to be diligent and conscientious in accordance with the law as agreed, resulting in losses to the company, and the company filed a lawsuit with the Shanghai Financial Court.
Securities Star noted that the reason for the lawsuit filed by China Merchants Securities dates back to 10 years ago, when China Security Branch and China Merchants Securities signed an agreement stipulating that China Merchants Securities would provide independent financial advisory and continuous supervision services for the company's major asset restructuring. However, the restructuring project was eventually found to be problematic. In May 2019 and September 2022, the two parties were respectively issued Administrative Penalty Decisions by the CSRC.
China Security Branch said in the announcement that because China Merchants Securities, as an independent financial adviser of a major asset restructuring project, failed to perform its duties as a financial adviser diligently and diligently in accordance with the agreement and made serious errors in professional judgment, resulting in a series of losses including the punishment of the administrative department, the breach of contract of China Merchants Securities not only violated the provisions of the law, but also violated the agreement of the contract between the two parties, which was the direct cause of the company's losses, and the company therefore requested that China Merchants Securities be ordered to compensate the company for various losses totaling 1.5315 billion yuan.
China Security Branch claimed 1.5 billion yuan from China Merchants Securities
According to the litigation facts and reasons disclosed by the listed company, in May 2013 and August 2014, the Company signed the Financial Advisory and Continuous Supervision Agreement on the Material Asset Restructuring Project (hereinafter referred to as the "Financial Advisory Agreement") and the Supplemental Agreement on the Financial Advisory and Continuous Supervision Agreement for the Material Asset Restructuring Project with China Merchants Securities respectively, stipulating that China Merchants Securities would provide independent financial advisory and continuous supervision services for the Company's material asset restructuring.
On January 23, 2015, under the guidance and participation of China Merchants Securities, the company's new shares were registered, and the major asset restructuring was completed.
In May 2021 and September 2022, the Shanghai Higher People's Court and the China Securities Regulatory Commission (CSRC) issued the Civil Judgment and Administrative Penalty Decision respectively against China Merchants Securities, finding that the documents issued by China Merchants Securities in the process of providing financial advisory services for major asset restructuring contained misleading statements and failed to exercise due diligence, and imposed administrative penalties on China Merchants Securities and the project executives.
China Security Branch said in the announcement that because China Merchants Securities, as an independent financial adviser of the company's major asset restructuring project, failed to perform its duties as a financial adviser diligently and diligently in accordance with the agreement and law, there was a serious error in professional judgment, resulting in misleading statements and false records in the company's information disclosure in the restructuring project, resulting in the company being punished by the administrative department and paying huge compensation to investors.
At the same time, it was also pointed out that China Merchants Securities also failed to conduct the necessary due diligence on the restructuring activities, failed to help the company identify the major risks in the restructuring project, and issued erroneous opinions on the fairness of the pricing of the restructuring transaction, resulting in a serious inflated appraisal value of the assets placed in the restructuring, which seriously damaged the company's interests and led to significant losses for the company. The breach of contract by China Merchants Securities violated both the provisions of the law and the agreement of the contract between the two parties, and was the direct cause of the company's losses.
China Security Branch requested that China Merchants Securities be ordered to compensate the Company for various losses totaling 1.5 billion yuan, and also requested that China Merchants Securities be ordered to refund 31.5 million yuan of financial advisory fees to the Company and pay interest losses. The above litigation claims are tentatively worth 1,531.5 million yuan.
In December 2014, 100% of the equity of China Security Technology completed the transfer of equity and industrial and commercial changes, and its main business was changed to security system integration and operation services and product manufacturing. Subsequently, in March 2015, the listed company changed its name, and then changed its name to China Security Technology Co., Ltd. in May 2018.
In December 2016, the China Securities Regulatory Commission (CSRC) decided to investigate the company for suspected violations of securities laws and regulations. On May 30, 2019, the results of the investigation were implemented, and China Security Branch was issued the "Administrative Penalty Decision" and "Market Ban Decision" by the China Securities Regulatory Commission.
According to the fine, after investigation, China Security Technology, as a relevant party of major asset restructuring, included the "Banbantong" project in the profit forecast, but failed to re-provide the "profit forecast report" in time when the project was difficult to continue to perform in the case of major changes, resulting in a serious inflated appraisal value, and an inflated operating income of 55.15 million yuan in 2013. There were misleading statements and false records in the material asset restructuring documents disclosed by China Security Branch on this basis.
In addition to the asset restructuring of both parties, the development of the listed company has also been seriously affected in the following years.
China Merchants Securities has just received a warning letter
Securities Star noted that in 2022, the China Securities Regulatory Commission issued the "Administrative Penalty Decision" to China Merchants Securities. The CSRC believes that the Independent Financial Adviser Report prepared and issued by China Merchants Securities contains misleading statements that cite the relevant profit forecasts and the appraised values of the assets placed.
China Merchants Securities failed to pay the necessary attention to the "Banbantong" project, failed to prudently verify the bid-winning status and actual progress of the "Banbantong" project, and failed to fully verify and verify the authenticity, accuracy and completeness of the contents of the documents cited in the preparation and issuance of the "Independent Financial Adviser's Report".
Subsequently, in June 2024, the Supreme People's Court released a number of typical cases of financial fraud, and the typical case of the restructuring of China Security Branch was also selected.
The Shanghai High People's Court and the Shanghai Financial Court held that Zhao, as an independent financial adviser, needs to conduct prudent due diligence on the restructuring activities and fully verify the authenticity, accuracy and completeness of the listed company's declaration documents. It was determined that Zhao XX Securities shall be jointly and severally liable for the civil liability for securities misrepresentation of a certain joint-stock company within the scope of 25%.
It is worth mentioning that on August 16 this year, the Shenzhen Securities Regulatory Bureau announced its decision to issue a warning letter to China Merchants Securities.
In the course of engaging in investment banking business, China Merchants Securities has insufficient supervision of some investment banking projects to supervise the standardized operation of listed companies, insufficient prudent use and independent verification of professional opinions from other securities service providers, and imperfect working papers.
In fact, this is not the first time that China Merchants Securities has received a regulatory warning letter this year. In February this year, the Anhui Securities Regulatory Bureau announced its decision to issue a warning letter to China Merchants Securities. In terms of the fiduciary management of the bonds of the "15 Cities and Six Bureaus", China Merchants Securities failed to supervise the issuer to do a good job in the management of the raised funds, and failed to continuously track and supervise the issuer's performance of the interim reporting obligations related to information disclosure, which violated Article 7 of the Administrative Measures for the Issuance and Trading of Corporate Bonds.
At the same time, on April 30 this year, the Shenzhen Stock Exchange announced the "Decision on Giving Notification and Criticism to China Merchants Securities Co., Ltd. and Related Parties". China Merchants Securities, as the sponsor of the IPO project of Shanghai Jingyu Environmental Engineering Co., Ltd., was found to have the following violations in the course of their practice: First, the verification procedures for the relevant matters of the issuer's related parties were not properly implemented. Second, the verification of the issuer's operation service business is not in place. Third, the verification of the issuer's VAM matters is insufficient.
What is thought-provoking is that because Jingyu Environment failed to ensure the truthfulness, accuracy and completeness of the issuance and listing application documents and information disclosure during the IPO process, and did not cooperate with intermediaries to carry out due diligence, there was deliberate concealment, and there were heavier and aggravated punishments, so the exchange decided to publicly condemn Jingyu Environment and its related parties, and not accept the listing application documents of Jingyu Environment within three years.
This typical case of China Merchants Securities as a sponsor has also attracted attention, as Jingyu Environment applied for a GEM IPO in June 2022 and terminated in March 2023 after responding to two rounds of inquiries. In the end, it became the first company to be publicly reprimanded by the Shenzhen Stock Exchange in 2024, and it is also the first company to be explicitly banned by the Shenzhen Stock Exchange from applying for IPO for a certain period of time since the reform of the registration system. (This article debuted Securities Star, author|Zhao Zixiang)
Source: Securities Star
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