Recently, the CSRC announced 20 typical illegal cases inspected by the CSRC in 2021. Among them, the illegal case of “Yihua life” information disclosure of household enterprises is a typical case in which the actual controller instructs listed companies to implement financial fraud during the period from 2016 to 2019, “Yihua life” falsely increased its revenue by 7.1 billion yuan through fictitious sales business
What means does Yihua life weave financial lies? In order to resist the investigation of the CSRC, what tricks did it play?
Yihua life: financial fraud for four consecutive years to hide the confrontation and investigation of important departments of the company
Public information shows that the main business of Yihua life is the design, production and sales of furniture, wood flooring and other household products, of which the export of products accounts for more than 70%. On April 27, 2019, Yihua life released its 2018 annual report. At the end of the reporting period, the monetary fund balance of Yihua life was 3.389 billion yuan, the total balance of long-term loans, short-term loans and bonds payable was 5.256 billion yuan, and the financial expenses during the reporting period were 447 million yuan, accounting for 115.50% of the net profit attributable to the parent company while lying on the book with billions of yuan of monetary funds and paying high interest for financing, the abnormal financial data of Yihua’s life has attracted the attention of the regulatory authorities 2020 April, China Securities Regulatory Commission (CSRC) filed an investigation on the suspected illegal information disclosure of Yihua life.
The inspectors of the CSRC told reporters that Yihua life has six production bases and a total of 47 subsidiaries in the consolidated statements. In order to find clues, they need to transfer the financial vouchers of all companies to the company site. Although the inspectors had long expected, they still felt pressure in the face of the mountain of financial vouchers piled up in the conference room at that time.
It is not easy to find the evidence of the company’s financial fraud from the vast number of financial vouchers. What makes the inspectors feel more difficult is that although the company cooperates with the investigation in the open, it is actually fighting in the dark. All contracts signed with overseas customers provided by Yihua life have only one framework agreement and do not provide basic transaction data. The whole export process of the company is opaque, and the core employees or senior executives that the inspectors want to inquire about either leave or cannot be contacted, and even the whole import and Export Department of the company disappeared
inspector of CSRC : when we went, the finance department, especially the import and export department, basically cleaned up, there were no computers, and only a stack of thin framework contracts were left there as business data for us to check. In order to avoid the investigation, the company hid all the staff of the normal import and export department and these business departments in the temporary office of the production workshop with poor conditions, and prevented the main business personnel from contacting the investigators.
customs declaration value is nearly 6 times higher than that of “double system” forged data of Yihua life
The inspectors of the CSRC told reporters that the financial fraud cases they investigated in the past were generally false exports. It had no real export and customs declaration, so the whole set of data were false. However, Yihua life is a real export and customs declaration, but the customs declaration price is falsely high and the value of goods is falsely high, so as to falsely increase the revenue and profit of the enterprise. Therefore, in order to find strong evidence of the company’s fraud, it is particularly critical to obtain the real quotation contract between it and overseas customers.
On the surface, the framework agreements provided by Yihua life to the inspectors of the CSRC, whether the unit price or total amount of customs declaration, are consistent with the customs data, and its financial data are also consistent with these framework agreements. However, during the investigation, the inspectors found that the company secretly runs another production and business system, and every time the inspectors enter the site, They secretly unplugged the system
through two completely independent production and business systems, Yihua life has made two sets of data respectively. One set of data is falsely high value for customs declaration, and the other set of data is the real data for reconciliation with overseas customers finally, the investigation team found relevant evidence of the real price of the company’s export goods, including quotation, English invoice, packing list and other shipping documents, as well as reconciliation and dunning details.
inspectors of CSRC : let’s see an example. This one is its true quotation record, and this one is its export declaration record the real price of this dresser is only US $205, but at the time of export declaration, the price of the dresser is as high as US $1359, with a price difference of nearly six times
The discovery of the real transaction data of Yihua life opened a door for the investigation of the case. In order to further consolidate the evidence, the inspectors also applied for cross-border law enforcement cooperation and asked the overseas regulatory authorities to assist in investigating the specific situation of some overseas customers. From the data returned from the follow-up assistance, the financial fraud of Yihua life is like a mountain of hard evidence. In order to calculate the false export data of Yihua life in each year, the inspectors of the CSRC checked the number of more than 12000 containers exported by the company from 2016 to 2019 one by one.
inspector of CSRC : Yihua life has made systematic and long-term counterfeiting, with huge illegal amount and bad nature. Because its 2019 annual report was published in April 2020, the new securities law was applied to punish it, and fined the company 6 million yuan
Under the background of comprehensively implementing the reform of the registration system, with the implementation of the securities law and the further improvement of the supervision system and delisting system of the capital market, the financial fraud case of Yihua life has become the first batch of vicious cases punished by the new securities law. On March 22 last year, due to the closing price of less than 1 yuan for 20 consecutive trading days, Yihua life was delisted by the Shanghai Stock Exchange and officially withdrew from the A-share market. It has thus become one of the first batch of “1 yuan delisted shares” under the new delisting regulations.
CSRC inspector: the power of the new securities law has been fully reflected in this case. First, the new securities law gives us more corresponding law enforcement authority. In addition, in the corresponding follow-up punishment, the new securities law increases the illegal cost. The warning to listed companies is mainly reflected in: firstly, listed companies must improve their corporate governance, and secondly, they need to operate in compliance with laws and regulations. They can’t easily break through the bottom line, otherwise they can only suffer from their own consequences.
