Guangfa Securities has been fined millions of yuan for issuing false records in documents for sponsoring projects | Securities | Business | Documents | China Securities Regulatory Commission | Issuance | Guangfa Securities | Ecology

The China Securities Regulatory Commission plans to impose a fine of over ten million yuan on Guangfa Securities Co., Ltd. on suspicion of issuing documents containing false records for sponsoring projects.

On the evening of July 17th, Guangfa Securities announced that the company received the Administrative Penalty Notice from the China Securities Regulatory Commission on the same day. The announcement shows that Guangfa Securities is suspected of not being diligent and responsible in providing sponsorship services for Meishang Ecological Landscape Co., Ltd.'s non-public offering of shares in 2018, issuing documents containing false records, and ordering Guangfa Securities to correct the situation and issuing a warning, resulting in a total fine of 102169800 yuan.

In addition, Wang Xin and Yang Leijie, representatives of the Meishang Ecological Project sponsor, were given warnings and fined 250000 yuan each.

On July 14th, Meishang Ecology received an Administrative Penalty Decision from the China Securities Regulatory Commission, which imposed a fine of 13.3 million yuan for fraudulent issuance and other related offenses. The then chairman and actual controller Wang Yingyan was fined 15.1 million yuan for illegal activities in the securities market, and was also subject to a lifetime ban on entry into the securities market.

Guangfa Securities has been fined a total of over ten million yuan

The announcement shows that Guangfa Securities received a notice of filing from the China Securities Regulatory Commission on April 17, 2023, and an advance notice of administrative penalty from the China Securities Regulatory Commission on July 17, 2023. The China Securities Regulatory Commission has completed its investigation into the case and plans to impose administrative penalties in accordance with the law.

After investigation, Guangfa Securities is suspected of not being diligent and responsible in providing recommendation services for Meishang Ecological's non-public offering of stocks in 2018, and issuing documents containing false records, including inadequate verification of the program design for large bank deposit accounts and inadequate execution of Meishang Ecological Bank deposit letter verification procedures; Inadequate execution of correspondence procedures and due diligence procedures for accounts receivable; Inadequate execution of the visit procedures for the fundraising projects of the non-public offering of stocks in 2018; Inadequate verification of loan contracts for important banks in Meishang Ecology; We have not obtained sufficient due diligence evidence and made independent judgments regarding the content in the application documents and securities issuance and fundraising documents of Meishang Ecology, which are not supported by professional opinions from securities service institutions.

The China Securities Regulatory Commission believes that during the process of providing recommendation services for the non-public issuance of shares by Meishang Ecology in 2018, Guangfa Securities did not comply with business rules and industry norms, and did not diligently and responsibly verify the issuance application documents of Meishang Ecology. The recommendation letter and other documents issued contain false records, which constitutes an illegal act under Article 192 of the Securities Law of the People's Republic of China revised in 2005. The act of Guangfa Securities not carefully verifying the authenticity and accuracy of the Meishang Ecological Issuance and Offering Documents violates the provisions of Article 28 of the Measures for the Administration of Securities Issuance and Underwriting, and constitutes "other violations of securities underwriting business regulations" as described in Article 191 of the Securities Law of 2005. For the above-mentioned illegal activities of Guangfa Securities, Wang Xin and Yang Leijie, the representatives of Meishang Ecological Project Sponsorship, are the directly responsible executives.

Based on the facts, nature, circumstances, and degree of social harm of the illegal behavior of the parties involved, and in accordance with relevant regulations, the China Securities Regulatory Commission intends to decide to order Guangfa Securities to rectify, issue a warning, confiscate 943400 yuan of sponsorship business income, and impose a fine of 933400 yuan; Confiscate illegal gains of 7.8302 million yuan from underwriting stocks and impose a fine of 500000 yuan; Wang Xin and Yang Leijie were given warnings and fined 250000 yuan each.

Guangfa Securities stated that the company will strictly fulfill its information disclosure obligations in accordance with legal and regulatory requirements, and its current business situation is normal.

In July 2020, Guangfa Securities was suspended by the Guangdong Securities Regulatory Bureau for six months due to the financial fraud case of Kangmei Pharmaceutical Co., Ltd., and its investment banking business was temporarily suspended. It was not until June 2021 that Guangfa Securities welcomed its first IPO project after the lifting of investment banking restrictions.

From past financial reports, investment banking business accounted for a relatively small proportion of Guangfa Securities' overall revenue. In 2022, Guangfa Securities achieved a revenue of 25.132 billion yuan and a net profit of 7.929 billion yuan, a year-on-year decrease of 26.62% and 26.95%, respectively. According to the annual report, the fair value change income of Guangfa Securities for the year was -2183 million yuan, becoming the largest drag. From a business perspective, the revenue of investment banking business was 602 million yuan, an increase of 38.2% year-on-year; The revenue of wealth management business was 11.102 billion yuan, a year-on-year decrease of 18.64%; The revenue from trading and institutional business was 2.866 billion yuan, a year-on-year decrease of 58.27%; The revenue from investment management business was 9.943 billion yuan, a year-on-year decrease of 21.47%.

As of the close on July 17th, Guangfa Securities closed at 14.8 yuan, down 0.60%.

*ST Meishang's actual controller is permanently banned from entering the securities market

On the other hand, on July 14th, Meishang Ecology announced that it had received the Administrative Penalty Decision and Market Entry Prohibition Decision from the China Securities Regulatory Commission. The letter shows that Meishang Ecology and its then chairman Wang Yingyan and director Xu Jing have five major illegal facts:

Firstly, there are false records in the information disclosure documents of Meishang Ecology's 2015 company prospectus, 2015-2019 annual report, 2020 semi annual report, 2016 non-public issuance of shares and payment of cash to purchase assets and raise supporting funds and related party transactions report, and 2017 public issuance of corporate bonds to qualified investors prospectus; The second is the failure to disclose related party transactions and fund occupation in accordance with regulations; Thirdly, failure to disclose major litigation matters in accordance with regulations; The fourth is the failure to truthfully disclose the occupation of funds returned by controlling shareholders; The fifth is that Meishang Ecological's non-public issuance of stocks constitutes fraudulent issuance.

The China Securities Regulatory Commission (CSRC) has found that Meishang Eco's net profit increased by a total of 457 million yuan from 2012 to June 2020, resulting in false records in relevant prospectuses, periodic reports, and issuance documents. Multiple financial reports show that from 2017 to 2021, Meishang Ecological's net profit has been declining year-on-year for five consecutive years, and its net profit has been continuously losing since 2020.

In addition, Meishang Ecological's non-public offering received approval from the China Securities Regulatory Commission in September 2018 and successfully raised 930 million yuan in March 2019. However, Meishang Ecology did not truthfully disclose Wang Yingyan's occupation of non operating funds and false records in the three-year financial statements on which the issuance application documents were based when submitting non-public issuance documents, which constitutes fraudulent means of obtaining issuance approval.

The China Securities Regulatory Commission pointed out that Wang Yingyan, as the then chairman, general manager, and actual controller of Meishang Ecology, was the directly responsible supervisor for Meishang Ecology's fraudulent issuance behavior; Xu Jing, as a director of the company and one of the actual controllers of Meishang Ecology, has a marital relationship with Wang Yingyan. She signed and guaranteed the authenticity, accuracy, and completeness of the information disclosure on the submitted and disclosed issuance application documents, and was not diligent and responsible. She is another directly responsible person.

In summary, the China Securities Regulatory Commission has decided to order Meishang Ecological to make corrections, issue warnings, and impose a fine of 13.3 million yuan; Warn Wang Yingyan and impose a fine of 15.1 million yuan; Xu Jing was given a warning and fined 530000 yuan. In addition, the China Securities Regulatory Commission has also implemented a lifetime ban on Wang Yingyan from entering the securities market. During the ban period, she shall not continue to engage in securities business in her original institution or hold positions as a director, supervisor, or senior management of her original listed company or non listed public company, nor shall she engage in securities business in any other institution or hold positions as a director, supervisor, or senior management of other listed or non listed public companies.