China Punishes Two Brokerages For Fraudulent IPO Listing

The China Securities Regulatory Commission punished two brokerages for failing in their due diligence while launching Initial Public Offering in 2011 and 2012.

China Punishes Two Brokerages For Fraudulent IPO Listing

The Chinese securities regulator plans to fine Minsheng Securities 2 million yuan ($326,024) for its failure to perform proper due diligence while handling Shanxi Tianneng Technology Co’s initial public offering in 2011. Besides the securities watchdog plans to confiscate 1 million yean fee the brokerage firm earned for handling the initial public offering mandate, according to a Bloomberg report.

The securities watchdog will also give a warning to another brokerage firm, Nanjing Securities, for a similar offence committed when it handled Guangdong Xindadi Biotechnology Co’s mandate for initial public offering in 2012.

The regulator however said that both the initial public offerings were stopped after uncovering the frauds.

China Securities Regulatory Commission Statement:

According to China Securities Regulatory Commission, both the brokerage firms provided falsified financial information in their offer documents. Four bankers involved in the two initial public offerings were also banned from the securities market for life and subjected to a fine of 150,000 yuan.

The new Chairman of CSRC Xiao Gang, who took over in March, has committed to enhance investor protection and regulatory enforcement and to rebuild the sagging morale in capital markets.

China’s IPO Market Suspension:

China’s initial public offering market was suspended late last year, as the government is determined to clean up the opaque market, by improving the quality of companies seeking listing at the stock exchanges. However the initial public offerings in China are expected to resume soon.

The latest developments follow another similar suspension handed out by the securities regulator in May. It handed over a three-month suspension to the underwriter Ping An Securities Company for its failure to exercise proper due diligence while handling the initial public offering from Wanfu Biotechnology (Hunan) Agricultural (SHE:300268)   in 2011. The Chinese watchdog also fined Ping An Securities Company 76.7 million yuan besides revoking the licenses of bankers in charge of the initial public offering.

Interestingly, over the past several years, the U.S. securities regulatory, Securities Exchange Commission, had been investigating the accounting anomalies of a number of Chinese companies. Some companies were delisted from the U.S. stock exchanges after finding accounting irregularities and resignation of auditors.

Recently the accounting unit of Deloitte in China, Deloitte Touche Tohmatsu CPA, LTC asked a federal court to dismiss a case filed by SEC to secure audit work papers from the company.