China Convicts 12 of Selling Stocks Without Licenses

(Shanghai) — A Shanghai district court handed out penalties and suspended prison sentences to 12 people for selling securities without licenses via messaging apps, as China continues to clamp down on financial misdeeds.

The offenders fetched gains of 43.49 million yuan ($6.4 million) from illegally reselling securities traded on the New Third Board, the national over-the-counter (OTC) exchange, Shanghai Jing’an District People’s Court said in its verdict dated late last month.

The verdict also revealed the offenders had overstated the prospects of those securities — such as claiming those OTC stocks would soon launch initial public offerings (IPOs) on stock exchanges — in order to drum up resale prices.

It said the principal offenders were Hong Yongjun and Deng Dehua, the owners of Anhui Dianshi Asset Management Co. Both of them were fined 500,000 yuan and given three-year suspended prison sentences.

Ten other people who colluded with Hong and Deng were handed lesser fines and shorter suspended prison terms.

Anhui Dianshi Asset Management could not be reached for comment on Thursday.

The New Third Board was launched in 2013 primarily as an OTC platform for small and midsize enterprises. Many of those OTC companies would then migrate to the exchanges to seek higher valuation as publicly traded companies after their respective IPOs.

In the first half of this year, six OTC companies applied for IPOs and all were approved. While market watchers said that might create a perception that OTC companies have better IPO prospects compared with companies with no listing experience, the China Securities Regulatory Commission (CSRC) has said repeatedly OTC companies have no policy preference in securing an approval to launch an IPO.

In fact, on Wednesday, medical-apparatus producer Aiwei Technology became the first OTC company whose IPO application was rejected by the regulator.

CSRC aborted Aiwei’s 332-million-yuan plan to float its shares on the Shenzhen-based ChiNext Board, the Chinese version of the Nasdaq Stock Market, citing questionable accounts and corporate governance issues.

Contact reporters Leng Cheng (chengleng@caixin.com) and Dong Tongjian (tongjiandong@caixin.com)