Ping An Securities will have its sponsorship qualifications suspended for three months, the China Securities Regulatory Commission (CSRC) announced Friday after determining that the company had failed to conduct adequate due diligence on a listing it backed in 2011, marking the first time such a punishment has ever been handed down to a mainland broker.
For neglecting its duties and endorsing false disclosures when sponsoring the initial public offering (IPO) of Wanfu Biotechnology (Hunan) Agricultural Development Co, Ping An will be fined 76.65 million yuan ($12.47 million) - an amount roughly three times what it earned from sponsoring Wanfu's float - the CSRC announced on its website Friday. The commission also wrote that it would put a three-month halt on Ping An's underwriting privileges, effectively stopping the company's listing projects in their tracks. The CSRC has yet to state when suspension will take effect.
"This is the heaviest disciplinary move the CSRC has yet made on a sponsor involved with a fraudulent IPO," an analyst at a Shanghai-based brokerage, who preferred to remain nameless, told the Global Times Sunday. "In the past, the regulator only punished sponsor representatives by cancelling their individual qualifications."
Wanfu raised 425 million yuan when it first listed on the Shenzhen Stock Exchange in September 2011. After the company's financial reports took a turn for the worse in the months after its IPO, the CSRC opened an investigation into its accounts on September 2012. According to a self-check report Wanfu issued on March 2, the company had inflated its revenues and net profits by 740 million yuan and 160 million yuan respectively from 2008 to 2011.
On the same day the results of the CSRC's investigation were made public, Ping An Securities held a press conference to announce the launch of a 300 million yuan fund to compensate investors who had incurred losses from their investments in Wanfu's shares between September 15, 2012 and March 2, 2013.
"That was also the first time a sponsor gave money to compensate investors for its role in a fraudulent IPO, which may set a precedent for future injunctions in similar scandals," the anonymous analyst said.
Yet, Wang Shixiong, a guest commentator at China Business Network, remarked that the 300 million yuan being offered by Ping An does not justify the part it played in Wanfu's fraud. According to statements from the CSRC, Ping An's sponsorship letter and continuous supervision report contained false information concerning Wanfu's actual operations.
This is not the first occasion that a company underwritten by Ping An was found to have falsified its financial records. Another Ping An-sponsored company, Shenzhen Hirisun Technology Incorporated, which went public in November 2011, recently admitted to inflating its profits for the 2011 financial year.
According to an online survey conducted by ifeng.com, more than 90 percent of the respondents said the three-month suspension was too light.
To warn other sponsors and restore investor confidence, the regulator should make a thorough check of all the companies Ping An has sponsored before allowing the brokerage to sponsor any new listing, Wang suggested.
New lease on life
Pay tribute to mothers who have been through Wenchuan earthquake
Feedback
RSS
