CSRC punishes companies for fraud

The China Securities Regulatory Commission (CSRC) announced administrative punishments including fines and warnings Friday for Guangdong Xindadi Biotechnology Co, Wanfu Biotechnology (Hunan) Agricultural Development Co, and Shanxi Tianneng Technology Co, for financial fraud.

Intermediaries that were also involved in the fraud, including law firms, securities firms, and accounting agencies, were also punished, a spokesperson for the CSRC said at a press conference Friday.

The move has been seen as a sign of the firmer regulation of China's capital market since Xiao Gang became head of the CSRC in March this year.

"The degree of punishment is heavier than in previous cases, and (it) really shows Xiao's determination," Cai Junyi, chief investment consultant at Shanghai Securities, told the Global Times in an interview on Sunday.

The securities regulatory body first started to investigate financial fraud by Guangdong Xindadi in August 2012, with the probe then extending to intermediaries who handled the IPO filing.

Guangdong Xindadi had obtained the CSRC's approval to list on Shenzhen Stock Exchange's ChiNext board, but media reports exposed falsified data in the company's IPO prospectus, which led to the IPO plan being aborted in June 2012.

Services fees that Guangdong Xindadi had paid during the IPO process to Nanjing Securities, Dahua CPA and Beijing Dacheng Law Offices were confiscated by the CSRC, and the companies were fined 2.2 million yuan ($360,844). 1.1 million yuan and 1 million yuan respectively.

Investigations into Wanfu Biotechnology and Shanxi Tianneng began in September 2012.

Wanfu was found to have added an extra 740 million yuan to its revenue data and an extra 180 million yuan in profits between 2008 and 2011. Trading of shares in Wanfu was suspended in April this year, and other violations by the company are to be investigated further.

Ping An Securities, Zhong-Lei (HK) CPA Company and Hunan Bo'ao Law firm were also part of the fraud and will be punished, the CSRC said.

Shanxi Tianneng added 856.4 million yuan to its revenue, and 381.5 million yuan to its profits in 2012. The company received a warning from the CSRC and a 600,000 yuan fine. Intermediary firms Minsheng Securities, Daxin Certified Public Accountants and Beijing Junzejun Law Offices have also been fined.

Cai said that the punishments will serve as warnings to listed companies and intermediaries in the IPO chain, but added that the degree of punishment still lags behind that in developed overseas capital markets.