China’s top securities watchdog on Dec 18 vowed 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 that the regulator will strengthen regulation and scrutiny of the IPO process and it will not tolerate any type of fraudulent and dishonest acts of companies.
“IPO fraud is one of the most serious legal violations in the securities market and it seriously jeopardized 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) and its senior executives were banned for life from entering the securities business. Xintai Electric’s chairman Wen Deyi later admitted the violation but said it did not warrant delisting.
In January the company sued the CSRC, seeking to reverse the decisions. It pointed out potential inconsistency of the CSRC punishment for similar misconduct and argued its wrongdoings did not deserve such a 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 with sufficient evidence. The company then appealed to a higher court for a second trial which opened on Dec 18 in Beijing.
The disputes between the two sides for the latest trial focused on whether Xintai Electric’s illegal act constitutes 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.