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On July 26, a video titled "A Day in a 985 Freshman's Investment Bank Internship" went viral online. The video showed that the college student was working in aCITIC Construction InvestmentStudy, openPorscheHe drives to work and plays golf and badminton after get off work. The most controversial thing is that the video leaked the project client information of several investment banking departments of CITIC Construction Investment.

Photo/Visual China

On the afternoon of the 26th, CITIC Construction Investment said: "The content of the video involves sensitive information of our customers, which violates our compliance management regulations. At present, our company has ordered the student to terminate his study and initiated accountability procedures against the relevant responsible persons in accordance with the relevant company regulations. The company will learn from this incident, further strengthen internal management, and strictly enforce discipline requirements."

However, according to a report by the Beijing News later on the 26th, the intern said that no one had ever told him to keep it confidential.

What information was leaked?

According to the video posted by the intern, information about three clients of CITIC Construction Investment Group appeared, namely "HaiRou Innovation", "WangYuan Technology" and "Guoneng Credit Control". In addition, documents of bank confirmation letters also appeared in the footage.

Among them, "Wangyuan Technology" is Tianjin Wangyuan Intelligent Technology Co., Ltd., a company planning to go public with CITIC Construction Investment as the sponsor representative. The prospectus shows that Wangyuan Technology was established in 2005 and its main business is swimming pool cleaning.robotR&D, design, production and sales.

Data shows that the company achieved operating income of 131 million yuan, 290 million yuan, 324 million yuan and 342 million yuan in 2020-2022 and the first three quarters of 2023, and net profit of 45.4512 million yuan, 97.311 million yuan, 98.7261 million yuan and 75.4377 million yuan respectively. It is worth noting that Wangyuan Technology plans to raise 1 billion yuan in this IPO, which is more than three times its total assets.

Wangyuan Technology first submitted its listing application in October 2022, and after the full registration system was implemented, it was transferred to the Shenzhen Stock Exchange for review in March 2023, and soon received inquiries. In March this year, the company and its sponsor failed to respond to the first round of inquiries after a year, and finally chose to withdraw the application.

As for Hai Robotics and Guoneng Information Technology, China Newsweek has not yet found any IPO registration and review records.

Tianyancha data shows that Hai Robotics was founded in 2016 and is a developer of logistics and warehousing robots. It has completed its D+ round of financing and is valued at US$2.08 billion. Guoneng Information Control was founded in 2003 and is affiliated to the State Energy Group. It has two major business segments: new energy and energy digitalization.

Zhu Yi, a professional investor in the venture capital industry and vice president of investment at Shanghai Angju Asset Management, told China Newsweek that this incident mainly involves some commercial privacy issues. Before the investment bank applied for guidance, the company's IPO was non-public information, and other securities firms did not know that CITIC Construction Investment had this business. If the news leaked, competing investment banks would do the work to grab the order, which would also put CITIC Construction Investment at a disadvantage. In addition, for companies whose key information was leaked, there may be a certain risk of IPO project failure due to the impact of the incident.

A securities industry practitioner told China Newsweek that for IPO companies, affected by this turmoil, it is not ruled out that they will change securities firms to handle their business, but the progress will also be affected.

On July 26, HaiRou Innovation responded to the media, saying, "The information was exposed because the investment institution commissioned CITIC Construction Investment to conduct a pre-investment financial due diligence on our company, which is a routine procedure of the investment institution. Please refer to HaiRou's public information for the latest situation of the company. HaiRou is also paying close attention to the impact of this incident."

How was the information leaked?

Founded in 2005, CITIC Construction Investment is a large-scale comprehensive securities firm controlled by the state. In 2023, CITIC Construction Investment achieved operating income of 23.243 billion yuan, ranking sixth among all domestic securities firms. In terms of the number of listed projects, there will be 30 in 2023, which is 2.3 times the number of listed projects in 2023.CITIC SecuritiesTied for first place in the industry.

Therefore, many people working in the securities industry expressed that it was "unbelievable" that such a thing happened to CITIC Construction Investment.

Zheng Zhigang, a professor of finance at the School of Finance and Economics of Renmin University of China, told China News Weekly that information disclosure is a very serious matter in the capital market. Usually in the IPO process, companies and securities underwriters will sign a strict confidentiality agreement. The leakage of key information may even affect the IPO process and the pricing of the capital market. It is a basic professional ethics for underwriters to keep customer information confidential, and it is also a common sense issue in the IPO process. "This kind of mistake is actually very low-level."

The above-mentioned securities firm practitioner said that in the securities firm work system, the investment banking department is more difficult, and it is a common practice to recruit interns. Many interns will enter the IPO stage very early. "The internship contract required by the company has a confidentiality clause, and the disclosure of customer information is strictly prohibited in management. For example, in our company, employees are not even allowed to take photos at their workstations."

For this incident, whether to sign a confidentiality agreement is indeed a key point of contention in dividing the rights and responsibilities of each party.

According to the "Guidelines on Internal Control of Investment Banking Business of Securities Companies" issued by the China Securities Regulatory Commission in 2018, securities companies should sign confidentiality agreements with investment banking business personnel and relevant insiders. Investment banking business personnel and relevant insiders should strictly abide by the confidentiality system and confidentiality agreements, and shall not disseminate or disclose insider information, engage in insider trading, or illegally seek benefits for themselves or others.

However, CITIC Construction and the intern had different statements about the leak. On the afternoon of the 26th, CITIC Construction said: "The content of the video involves sensitive information of our customers, which violates our compliance management regulations." However, according to a report by the Beijing News later on the 26th, the intern said that no one had ever told him to keep it confidential. "The information was given to me by an official employee in the name of study materials, and no one told me it was confidential."

The intern has now deleted his social media account. China Newsweek verified the intern's statement with CITIC Securities, but the company did not respond directly, only saying that it would issue another statement later.

But no matter what, this video exposes CICC’s weakness in internal control.

A lawyer engaged in IPO business told China News Weekly that such incidents should not happen. "The leakage of confidential information involves both internal control and breach of contract. In terms of internal control, it may reflect that the company has not implemented the training, requirements, and management system for interns and even employees in charge of projects. If a confidentiality agreement is signed in advance and the leaked information is confidential, it is a breach of contract, which means that the contract has not been fulfilled properly."

Lou Xiaoyun, a lawyer at Shanghai Gubei Law Firm, further explained to China News Weekly that the underwriter and the issuer will sign a confidentiality agreement, and the liability for breach of contract for leaking customer information will be determined according to the confidentiality agreement. In terms of internal control, it should be clear whether the interns belong to the project team. If they are not part of the project team and can get relevant information, there must be defects in the internal control. The external responsibility is based on the agreement, and the internal accountability should be based on the internal management rules and disciplinary regulations of CITIC Construction Investment.

It is worth noting that this is not the first time that a similar case has occurred to CICC.

On January 8 this year, the lead underwriter CITIC Construction Investment submitted a draft of the "Prospectus" to the Shanghai Stock Exchange, but mistakenly sent it the "Lead Underwriter Statement" of another company, Nantong Chongchuan Urban Construction Development (Group) Co., Ltd. In other words, when CITIC Construction Investment submitted the document, it not only confused the issuer, but also sent the wrong document.

The Shanghai Stock Exchange requires the lead underwriter to explain the reasons for the errors in the uploaded files and to verify the authenticity, accuracy and completeness of the full set of application materials; the lead underwriter's internal review and quality control departments are requested to strengthen the quality control of the application materials; and a response is required to be submitted within 30 working days.

Author: Yu Shengmei and Yu Yuan

Editor: Yu Yuan