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Tuchong Creative/Photo provided by Zhai Chao/Drawing

Securities Times reporter Cheng Dan

The capital market has been under strict supervision. Since August, 10 listed companies or related parties have announced that they have been investigated. This year, a total of 73 companies or related parties have been investigated, an increase of nearly 60% over the same period last year.

Looking at the reasons for being investigated, most of them are related to "the company's suspected illegal information disclosure." Tian Lihui, dean of the Financial Development Research Institute of Nankai University, said that with the release of the new "Nine National Regulations," regulatory authorities have strengthened information disclosure and corporate governance supervision, and severely rectified illegal and irregular behaviors in key areas such as financial fraud and capital occupation. The number of listed companies under investigation has increased significantly, and the main reasons for the investigation are untimely, inaccurate, incomplete or misleading information disclosure.

Enterprises under investigation

Many of them are “failed” in information disclosure

On August 13, Renzixing fell 5.97% to 2.99 yuan. This performance was related to an announcement a few days ago. On August 9, Renzixing announced that the China Securities Regulatory Commission decided to file a case against the company for suspected illegal information disclosure.

Regarding the reason for the case being filed, Ren Zixing said that it was mainly because the company discovered through self-inspection that its wholly-owned subsidiaries had overstated assets, overstated revenues, and overstated profits in relevant years. The company has actively carried out rectification, corrected accounting errors and made retroactive adjustments to the relevant annual financial statements, and hired an accounting firm to issue relevant audit reports.

This is a microcosm of listed companies under investigation. Since August, 10 listed companies have disclosed that they have received investigation notices. In addition to Ren Zixing, Zhongqingbao, Shenyang Chemical, Yongjin Shares and other companies or their related parties have been investigated by the CSRC, some of which are "suspected of illegal information disclosure" and some of which are "suspected of insider trading and short-term trading."

If we look at the longer term, 73 listed companies or related parties have been investigated so far this year, an increase of about 59% year-on-year. In terms of the causes of the cases, more than 80% of the listed companies under investigation were suspected of violating laws and regulations in information disclosure.

Information disclosure is the foundation for the healthy and orderly operation of the capital market, the premise for investors to make value judgments and investment decisions, and the top priority of the CSRC's supervision and law enforcement. For example, Fudan Fuhua, which was investigated, was "discovered" by the CSRC because of suspected false records in its financial reports.

According to the announcement, between 2013 and 2017, Fudan Fuhua borrowed a total of 75 million yuan from the company's construction contractors to settle the historical accounts of two joint-stock companies, and falsely settled the accounts. Among them, 20 million yuan of debt has been confirmed by judicial judgment documents in November 2023, and 55 million yuan is in litigation. In June 2023, the company set aside 20 million yuan of estimated liabilities according to the first-instance judgment and recognized the full amount as a current loss. The announcement shows that the above-mentioned concealment of liabilities, false settlement of accounts, improper accounting recognition and other behaviors have led to false records in the periodic financial reports disclosed by Fudan Fuhua from 2013 to 2023. Fudan Fuhua stated that at present, the company's production and operation are normal. During the investigation, the company will actively cooperate with the investigation of the China Securities Regulatory Commission, and strictly comply with the provisions and regulatory requirements of relevant laws and regulations to fulfill its information disclosure obligations in a timely manner.

In addition to the above-mentioned problems, some companies have been filed for failing to disclose annual reports on time. Seven listed companies including Dongxu Lantian, Dongxu Optoelectronics, ST Huatie, Weichuang Holdings, *ST Sansheng, Puli Pharmaceutical, and *ST Yuebo have been investigated by the China Securities Regulatory Commission "because the company failed to disclose its 2023 annual report within the prescribed time limit."

The “critical few” are more concerned

In addition to listed companies, regulatory authorities are paying more attention to the "key few". This year, the actual controllers, controlling shareholders, directors, senior executives and other related parties of 29 listed companies have become the targets of investigation.

For example, Zhongqingbao’s announcement showed that the company and its actual controller Zhang Yunxia were suspected of illegal information disclosure, and the CSRC decided to file a case against the company and its actual controller Zhang Yunxia. Another example is that Chen Xiang, the actual controller and chairman of ST Yongyue, was filed by the CSRC for suspected insider trading in the securities market and illegal information disclosure. Another example is Wantong Development’s announcement that the company’s director Wu Danmao received a case filing notice from the CSRC, and the CSRC decided to file a case against him for suspected short-term trading of the company’s stocks.

Wang Zhibin, a lawyer at Shanghai Minglun Law Firm, said that directors, supervisors and other "key minorities" should take the initiative to supervise the compliance of listed companies, strictly abide by the law, warn of possible illegal and irregular behaviors, and eliminate hidden dangers. However, in existing cases, the "key minorities" of some companies have become participants and executors of illegal and irregular behaviors of listed companies, and these behaviors have seriously damaged the rights and interests of small and medium-sized investors. "The reason why small and medium-sized investors pay special attention to these 'key minorities' is mainly because these people have corporate information that the outside world does not know, and the 'information gap' also affects the company's stock price to a certain extent."

The China Securities Regulatory Commission has publicly stated that it will use a "combination of measures" to punish the "key minority" of listed companies' actual controllers, directors, supervisors and senior executives who embezzle money and property through crackdowns and punishments, investigations and compensation, rectification within a time limit, and referrals to the police, leaving them "with nothing". At the same time, it will strengthen the linkage between information disclosure and transaction supervision, conduct dimensional expansion and analysis of relevant clues, and continue to strike accurately and efficiently, so that the "key minority" who dare to break the law will learn a lesson and remember it.

The trend of strict supervision and management continues

The recent mid-year work conference of the China Securities Regulatory Commission stated that it would strengthen supervision through reform and effectively protect the legitimate rights and interests of investors. It would vigorously improve the effectiveness of supervision and law enforcement, adhere to the principle of heavy-handedness in dealing with chaos, intensify efforts to prevent and crack down on counterfeiting, improve the supervision and law enforcement mechanism, strengthen technological empowerment, and severely punish major illegal cases.

"In the future, the supervision of market entities, especially listed companies, will continue to increase." Tian Lihui believes that the regulatory authorities will use a variety of measures to improve the quality of listed companies, including maintaining a high-pressure situation against illegal and irregular behaviors of listed companies, increasing the intensity of investigation and punishment of information disclosure violations, financial fraud and other behaviors; building a three-dimensional accountability system of administrative law enforcement, civil accountability, and criminal crackdown to increase the cost of violations; and encouraging listed companies to strengthen information disclosure, improve corporate governance, and enhance investor protection awareness through policy guidance.

An investment banker said that making supervision "fanged and thorny" is a necessary measure to promote the healthy development of the capital market. The increase in the number of listed companies corresponds to the increase in the difficulty of supervision. The regulatory authorities continue to increase supervision and increase the punishment of illegal and irregular behaviors. This is a powerful measure to maintain market fairness, justice, and openness and protect the legitimate rights and interests of investors. All parties involved in the market need to strengthen self-discipline and standardization to jointly promote the healthy development of the market.

The reporter learned that the regulatory authorities are accelerating the research and promulgation of regulations on the supervision of listed companies to strengthen the deterrent effect of administrative accountability; promoting the promulgation of judicial interpretations on the crime of breach of trust and damaging the interests of listed companies, and strengthening criminal accountability for the "key few" and those who constitute crimes and cooperate with fraud; improving the civil accountability support mechanism, promoting the simplification of registration, litigation, execution and other procedures, strengthening investor compensation and relief, promoting all-round and three-dimensional accountability, and increasing the comprehensive cost of violations.