Caixin
Sep 11, 2014 02:40 PM

Media Outlet Blackmailed over 100 Companies, Xinhua Reports

Investigators have identified more than 100 companies allegedly extorted by a well-known financial news outlet, Xinhua reports, and one editor said his superiors wanted him to sign ad agreements with nearly three-quarters of IPO hopefuls every year.

The report, published on the official news agency's website on September 11, contains quotes from suspects who admitted to Shanghai police that they collaborated to extort companies for bribes – often in the form of buying ads with the media outlet – by threatening to hit them with bad publicity ahead of their initial public offering or other major events.

The police said on September 3 they had arrested eight suspects. They included Liu Dong and Zhou Bin, the chief and deputy chief editors of 21cbh.com, the website of 21st Century News Group, state media reported.

The group also owns the well-known 21st Century Business Herald. The website used to be a digital version of the newspaper, but in 2010 it was told to handle its own finances.

The journalists primarily targeted big corporations and companies that were preparing to go public or for a major event such as restructuring that would affect share prices, Xinhua reported. They would seek the firms out and charge them a big fee for publishing stories that exaggerated merits and downplayed risks. Those that refused to pay were often hit with scathing reports and forced to buy ads with 21cbh to remove the stories from the website.

Zhou admitted he was told by Liu to select out "uncooperative" companies and ask reporters at weekly editorial meetings to probe them for investment red flags, the Xinhua report says.

"After negative reports were put online, those companies would come to us or through a public relations agency to talk about cooperation, usually in the form of buying ads that cost about 200,000 to 300,000 yuan," Zhou said.

Once the ads contract was signed, Zhou would tell the editorial department to remove the reports from the website, Xinhua reported.

Liu said they would tell journalists not to report on the problems at companies that had agreed to buy ads on the site. There were exceptions, but the companies often ended up having to pay more by signing a new agreement.

Wang Zhuoming, a suspect and journalist with 21cbh, said the blackmailing was not a personal choice but a collective action common in all levels of the company, Xinhua said.

Liu also said he was under pressure from higher-ups to sign advertising agreements with at least 70 percent of newly listed enterprises every year.

Xinhua says the investigators' preliminary findings show that the website signed ad agreements with more than 100 companies every year since 2010 and received several hundreds of millions of yuan from them.

Lian Chunhui, general manager of Roya Investment Services Ltd., one of the PR firms implicated in the investigation, told Xinhua from a jail that she witnessed the ethical deterioration of the financial PR industry in recent years.

In 2005, a few media firms started realizing that they could make money by blackmailing the great number of companies wanting to go public, she said. As the extortion spread, firms increasingly wanted their PR agencies to be able to quiet potentially damaging media reports.

Five years later, more and more media outlets had become blackmailers, whether or not they were famous, she said. Many companies preparing for IPOs were so preoccupied with handling media relations that they did not even have much energy for organizing road shows, she said.

Lian also said some of 21cbh's former employees left the company to start their own blackmail businesses. "Listed firms were hijacked, fearing this media environment but having no choice but to cooperate," she said.

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