Every hot review | From the perspective of the Yuebo Power case, regulatory upgrading and governance of financial fraud need to break through the relevant 'ecosystem'
Editorial Commentary by Du Hengfeng
On June 27th, an announcement was released showing that Juebao Dynamic and related individuals had received a warning from the China Securities Regulatory Commission (CSRC) regarding their financial fraud. According to the CSRC investigation, from 2018 to 2022, Juebao Dynamic allegedly increased its income by approximately RMB 9.46 billion and profits by around RMB 2.43 billion. The CSRC intends to impose a total fine of RMB 30.8 million on Juebao Dynamic and related individuals, and ban two main entities from the securities market for 8-10 years.
In this financial fraud case, Li Zhanjiang is considered the "main culprit" who served as chairman, general manager, and secretary of Juebao Dynamic from 2015 to 2022. He decided and organized various fraudulent businesses, including the sale of non-existent new energy automotive power systems and visual recognition board card processing, and used Juebao Dynamic's loans to pay off his personal shareholding collateral. He also concealed this information from the listed company. As a result, the CSRC imposed a warning on Li Zhanjiang and fined him RMB 13.5 million, while imposing a 10-year securities market ban.
However, the listed company and related individuals being subject to administrative penalties by the CSRC is only the beginning of the punishment process. They will also need to bear civil compensation liabilities and may face criminal charges. In terms of civil liability, according to the Securities Law and relevant regulations, investors who purchased Juebao Dynamic stocks between 2018 and 2023 and suffered losses can file claims, with the potential compensation amount significantly higher than the administrative fine.
For example, in the case of Zhongtai Island's financial fraud, the listed company was fined RMB 0.6 million, while the then-chairman Wu Hongguang was fined RMB 0.3 million. However, investors filed claims totaling over RMB 1 billion, with compensation amounts reaching tens of millions. Another example is Konie machine electrical, which was involved in a merger transaction and made false statements, resulting in a CSRC fine of RMB 0.3 million. The company set aside RMB 14.4 billion for potential losses to respond to investor lawsuits, involving institutions such as Nord Asset Management.
In the criminal responsibility aspect, the CSRC has explicitly stated that if the Juebao Dynamic financial fraud case is found to have involved criminal behavior, it will transfer the case to the public security organs for investigation and punishment. In previous cases, such as those involving Jin Ya Technology and Konie machine electrical, the controlling individuals were sentenced.
The Juebao Dynamic financial fraud case's punishment also has a significant implication - it is the first time that accomplices have been held accountable. During Juebao Dynamic's financial fraud period, He Jing and Yu Yi two individuals knew about the company's intention to "inflate revenue" and "do big business," and collaborated with Li Zhanjiang's request and arrangement to participate in the fraud, contributing RMB 9.1 million and RMB 2.7 billion in income respectively. Ultimately, He Jing and Yu Yi were fined RMB 0.3 million and RMB 2 million respectively.
Financial frauds are often difficult to eradicate because of the complicity of accomplices. These seemingly accounting-accurate transactions, unrelated to outside parties, make fraudulent behavior more systematic and concealed, accumulating severe problems. The "main culprits" behind financial fraud are often listed company controlling individuals or chairmen, who are willing to take risks for massive illegal profits. For accomplices, the benefits of participating in fraud are much lower than those of the main culprits. If the cost of violating the law increases and enforcement is strict, the limited gains will correspond to enormous risks, making it impossible for accomplices to participate in fraudulent activities. Once there is no accomplice's participation, listed companies' financial frauds become significantly more difficult to achieve, providing a effective breakthrough point for breaking up the "ecosystem" of financial fraud.