More steps set to be taken by watch­dog in fraud crack­down

China Daily European Weekly - - Business - By LI XIANG lix­i­ang@chi­nadaily.com.cn Liu Yukun con­trib­uted to this story.

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.

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