According to the financial report of China Central Television, recently, the CSRC announced 20 typical illegal cases in the capital market in 2021. Among them, the illegal case of information disclosure of Shengtong group is a typical case of financial fraud in the bond market. According to the investigation of the CSRC, Shengtong group has falsely increased its income by 61.5 billion yuan and its profit by 11.9 billion yuan for five consecutive years. At present, the CSRC has imposed administrative penalties on them.
It is worth noting that on May 20, the China Securities Association (hereinafter referred to as the China Securities Association) issued the code of good faith in the securities industry (hereinafter referred to as the code of good faith) and the measures for the management of professional reputation information in the securities industry (hereinafter referred to as the management measures), which plans to establish a professional reputation information database of the securities industry, incorporate the professional reputation information into the professional reputation incentive and restraint mechanism, implement self-discipline management, and strengthen the incentive of trustworthiness and the punishment of dishonesty, Clearly incorporate the integrity of the institution and its staff into the practice reputation incentive and restraint mechanism.
Shengtong group’s financial fraud for five consecutive years
CSRC launches cross market investigation
According to the financial report of China Central Television, public information shows that Shengtong group’s main business is steel cord and chemical business. It was once known as the “king of steel cord” in Shandong. Since 2011, Shengtong group has issued 13.65 billion yuan of bonds in the stock exchange bond market and inter-bank bond market. However, in 2018, Shengtong group and its subsidiaries defaulted on several matured debts, deteriorated their solvency and applied to the court for bankruptcy, which aroused widespread concern in the market.
The inspectors of the CSRC said that after receiving the clues, the inspection team of the CSRC launched an investigation on Shengtong group. After visiting dozens of enterprises and dozens of people involved in the case in the upstream and downstream of Shengtong group, and obtaining a large number of production and marketing, tax payment and financial data, the fact of financial fraud of Shengtong group surfaced.
The CSRC found that from 2013 to 2017, Shengtong group disclosed its losses as profits for five consecutive years by preparing false financial statements and directly modifying the audited financial statements, with a cumulative false increase of income of 61.5 billion yuan and false increase of profit of 11.9 billion yuan. By what means did Shengtong group create such sky high income? The reporter learned that there are two main fraud means of Shengtong group:
The first means is to “create something out of nothing” and make continuous counterfeiting by using the discontinued business segments for a long time. Shengtong group has a subsidiary called Shengtong chemical, which is the second largest source of income of Shengtong group according to the disclosed materials. However, the investigation by the CSRC found that the company had stopped production as early as 2013 due to environmental protection quality and other reasons. However, in the materials disclosed by Shengtong, the company still contributes about 3 billion yuan of revenue every year on average.
The second means is “cheating”. In order to make the company’s financial data statements look better, Shengtong group has revised the consolidated financial statements issued by the audit institution after the audit institution has issued an audit opinion on the false financial statements of Shengtong group, and stamped the seal of the false accounting firm, thus falsely increasing the profit by 600 million yuan.
In August 2021, the CSRC made the decision of administrative punishment and market entry ban on Shengtong group according to law. The case is also a typical case in which the CSRC carried out law enforcement across the exchange and inter-bank bond markets.
In December 2018, the people’s Bank of China, the CSRC and the national development and Reform Commission jointly issued the opinions on Further Strengthening the law enforcement of the bond market, which clearly stipulates that the CSRC will uniformly enforce the law on the illegal acts in the inter-bank and exchange bond markets in accordance with the law, which will not only help to achieve the unification of the supervision and law enforcement standards of the two markets, but also help to form a joint supervision force and bring about the upgrading of the supervision of the bond market.
four intermediaries were fined one after another
Dagong international was fined and confiscated 4.95 million
Behind the vicious financial fraud cases of Shengtong group, the failure of the “gatekeeper” responsibilities of relevant intermediaries has also been exposed.
According to the securities times, the administrative punishment decision recently disclosed on the CSRC website shows that due to the false records of Dagong international in providing rating services for Shandong Shengtong Group Co., Ltd. (hereinafter referred to as “Shengtong group”) in issuing corporate bonds and debt financing instruments, the CSRC has filed a case for investigation and trial of the illegal acts of Dagong international credit evaluation Co., Ltd., and decided to order Dagong international to make corrections, The business income of 1.6509 million yuan shall be confiscated and a fine of 3.3319 million yuan shall be imposedP align = “center” screenshot source: CSRC website
The corporate bond rating report and inter-bank debt financing instrument rating report issued by Dagong international have the following statements: “the production capacity of steel cord ranks among the top three (or the second) in China and has strong scale advantages. The company has the largest R & D and production base of new phosphorus free detergent additives in China… Comprehensive analysis shows that the company has a strong ability to repay its debts, and the risk of failure to repay the bonds at maturity is very small”. There are false records in the above rating opinions and rating conclusions.
The CSRC determined that Dagong international failed to be diligent and responsible in issuing the relevant rating report. On the one hand, due diligence was not carried out in accordance with the requirements of relevant rules. There are defects in the on-site interview. Dagong international failed to carry out on-site interviews as required and planned. After investigation, Dagong international only interviewed Li moumao, general financial manager of Shengtong group, in the process of issuing the application rating report, and did not conduct on-site interviews with other personnel in accordance with relevant regulations and work plans. Dagong international failed to conduct on-site interviews with the principals of its subsidiaries as required.
The CSRC finally decided to order Dagong international to make corrections and “punish two without one”. For the relevant responsible personnel, the CSRC will deal with them separately according to law.
According to China Central Television finance and economics, at present, the CSRC has imposed administrative penalties on four intermediaries providing intermediary services for Shengtong group, including Dagong international zhongtianyun certified public accountants confiscated business income of 5.75 million yuan and fined 11.5 million yuan; The lead underwriter YueKai securities was confiscated of his illegal income of 6.6 million yuan and fined Shanghai Pudong Development Bank Co.Ltd(600000) yuan; The underwriter Sealand Securities Co.Ltd(000750) was confiscated of his illegal income of 17.98 million yuan and fined Shanghai Pudong Development Bank Co.Ltd(600000) yuan.
China Securities Association new regulations released
emphasize “integrity” and “reputation”
According to the China Securities Journal, the CSRC announced 20 typical illegal cases, including financial fraud, illegal information disclosure, failure of intermediaries to exercise due diligence, manipulation of stock prices, insider trading, refusal to hinder investigation and other types.
Every editor noticed that the financial fraud cases of Yihua life and Guangzhou Longqi, the illegal and illegal disclosure of bond information of brilliance group and Yongmei holdings, and the investigation cases of the then chairman of Hangzhou Zhongheng Electric Co.Ltd(002364) against the law enforcement personnel of the CSRC were prominently listed.
The subjects involved in the case include not only the “key minority” of directors and supervisors of listed companies, but also intermediaries.
On May 20, the administrative measures issued by the China Securities Association made it clear that the China Securities Association established a practicing reputation information database of the securities industry, incorporated the practicing reputation information of the self-discipline management object into the practicing reputation incentive and restraint mechanism, and implemented self-discipline management. Practice reputation information includes basic information, integrity information and other practice reputation informationP align = “center” screenshot source: website of China Securities Association
Specifically, integrity information includes recognition and reward information and illegal and dishonest information. The administrative punishment, market entry ban decision and supervision and management measures taken by the CSRC and its dispatched offices, the disciplinary measures implemented by the industry organizations of the securities and futures market and the management measures stipulated in laws, administrative regulations and rules, and the refusal to perform the reached mediation agreement on securities futures disputes are all illegal and dishonest information.
Other professional reputation information includes other positive information and other negative information. It is noteworthy that other negative information also includes other situations that violate public order and good customs or damage the image and reputation of the industry.
The internal punishment decisions made by a securities firm to its staff, which are related to securities business, violate laws and regulations or violate the internal regulations of the company, involving demotion, dismissal, dismissal, termination of labor contract or entrustment contract, dismissal, persuasion, dismissal, dismissal and other internal punishment decisions are in the scope of other negative information.
In addition, the China Securities Association shall keep the inquiry record of practice reputation information, except for the inquiry of public information. Query records include the query subject, query object, query content, query reason, query purpose, query time, etc. of practice reputation information. The query record shall be kept for 10 years from the date of generation of the record.
