China Blacklists Six Executives Linked to $4.2 Billion Fraud
China’s securities regulator blacklisted six executives for
their role in a $4.2 billion accounting scandal at Kangmei Pharmaceutical Co.,
one of the country’s biggest drugmakers.
The ban includes Kangmei’s chairman at the time and five
others, who won’t be allowed to participate in the securities market or take
positions as executives or board members at any listed company for at least 10
years, Kangmei said in a stock-exchange filing. The China Securities Regulatory
Commission also ordered the company, a producer of traditional Chinese
medicines, to pay a 600,000 yuan ($84,510) fine.
CSRC Chairman Yi Huiman said the regulator would spare no
efforts in cracking down on financial fraud at listed companies, according to a
China Central Television report Friday.
After a months-long regulatory probe into its finances,
Kangmei said in May last year that it had overstated its cash positions by 29.9
billion yuan using false documents and transaction records -- an amount one
lawyer said was unprecedented in China. The firm admitted to “serious”
deficiencies in its corporate governance and internal controls.
Under China’s previous securities law, the maximum fine for
securities violations was 600,000 yuan. Penalties were increased significantly
with a new law implemented in March: the maximum punishment for wrongful
information disclosure at listed companies is now 10 million yuan, according to
the CSRC’s website.
The fine “is way to small compared with the massive amount
of Kangmei’s financial fraud and definitely not enough to deter any other
company to do the same,” said Jiang Liangqing, a fund manager at Beijing-based
Ruisen Capital Management. “It is a loophole of the old securities law. He
added the new maximum fine is also “not enough to deter financial fraud compared
with the benefit these firms can get. Kangmei’s case just once again shows the
lack of deterrence for financial fraud in the A-share market.”
Kangmei shares rose 4.8% Friday, the most they could climb
as daily moves remain restricted. The stock has tumbled about 70% since the
company told investors that it was under investigation in late 2018. Kangmei
was removed from the MSCI China Index and a list of China Connect Securities
almost a year ago.
In February, Kangmei failed to repay about 2.4 billion yuan
of puttable bonds. Later that month, a majority of creditors accepted a debt
workout proposal in which creditors holding no more than 500,000 yuan in face
value would get full repayment. Those owning more would get paid in proportion
to their positions.
Comments
Post a Comment