More steps set to be taken by watchdog in fraud crackdown
China’s top securities watchdog vowed on Dec 19 a tougher crackdown on fraudulent initial public offerings following the opening of a trial involving the first Chinese company forced to be delisted from the stock market over IPO fraud.
Huang Wei, assistant chairman of the China Securities Regulatory Commission, said the regulator will strengthen regulation and scrutiny of the IPO process and will not tolerate any type of fraudulent or dishonest acts by companies.
“IPO fraud is one of the most serious legal violations in the securities market and it seriously jeopardizes the foundation of the market,” Huang said during the second trial in Beijing.
The trial involved Shenzhen-listed Dandong Xintai Electric Co, which was forced by the CSRC to be delisted from the stock exchange in July for fabricating financial information in its IPO application.
The company was fined 8.3 million yuan ($1.3 million; 1.1 million euros; £941,800) and its senior executives were banned for life from entering the securities business. Xintai Electric Chairman Wen Deyi later admitted to the violation but said it did not warrant delisting.
In January, the company sued the CSRC, seeking to reverse the decisions. It said there was potential inconsistency in the CSRC punishment for similar misconduct and argued its wrongdoings did not deserve such heavy punishment.
Xintai Electric lost the first trial in May in Beijing as the court rejected its requests and ruled that the punishment by CSRC, including the delisting, was appropriate and backed by sufficient evidence. The company then appealed to a higher court for a second trial, which opened on Dec 19 in Beijing.
The disputes between the two sides for the latest trial focused on whether Xintai Electric’s illegal act constituted a fraudulent share issuance under the Securities Law and whether CSRC’s determination of the company’s falsification of its financial and accounting information should be backed by judicial appraisal or views from professional auditing firms. Another major dispute is whether Xintai Electric deserved a lighter punishment.
Ji Luohong, vice-president of the Beijing High People’s Court and the chief judge of the trial, said the court will announce the ruling after holding a collegial panel discussion. He added that the ruling will seek to protect the legal interests of the market participants and to maintain the overall market order.