Ex-Regulator’s Private Equity Firm Fined for Breaking Securities Law
A highflying Chinese private equity firm was punished for misconduct in a private share placement by one of its subsidiaries after a 2½-year investigation in a regulatory crackdown on market irregularities.
Tongchuang Jiuding Investment Holding Co. Ltd. (Jiuding Holding, 同创九鼎投资控股有限公司) was fined 100 million yuan ($15.5 million) by the China Securities Regulatory Commission (CSRC), the agency said Thursday.
Wu Gang, a former CSRC official and a director of Jiuding Holding, was fined 100,000 yuan, the subsidiary, Tongchuang Jiuding Investment Management Group Co. Ltd. (Jiuding Group) said in a filing (link in Chinese) with the National Equities Exchange and Quotations (NEEQ). Details of the punishments were disclosed in administrative penalty notices handed down to the two companies by the CSRC, which also accused Jiuding Group (link in Chinese) of violating laws and regulations related to information disclosure.
Jiuding Holding, which became a star of the private equity (PE) market in the 2010s and gained a reputation for savvy pre-IPO investments, was put under investigation by the CSRC in March 2018 on suspicion of securities law violations.
The CSRC’s punishments relate to a 2.25 billion yuan private placement by Jiuding Group, which Wu chairs. The company is traded on the NEEQ, the largest over-the-counter stock-trading platform in China.
In August 2014 it applied to the NEEQ to issue 573.8 million shares to 11 investors in a private placement and said that after the deal it would have 173 shareholders, meaning it didn’t need approval from the CSRC. Regulations stipulate that companies need the commission’s go-ahead for any stock sale that takes the number of shareholders above 200.
However, the CSRC later discovered that five of the 11 investors entered into secret agreements with Jiuding Holding to buy shares in the private placement with money lent by the company. Their holdings would then be transferred to 161 individual and institutional investors. As a result, Jiuding Group had a total of 335 investors, which the commission said put it in breach of regulations. The CSRC said the company concealed the real number of shareholders, falsified records and issued misleading statements, putting it in breach of regulations requiring information to be disclosed in an accurate, timely and complete manner.
The commission fined Jiuding Holding 100 million yuan over its illegal use of other investors’ trading accounts and Jiuding Group 600,000 yuan for violations of information disclosure rules. In addition to his 100,000 yuan fine for illegal use of others’ trading accounts, Wu was issued a warning and a fine of 300,000 yuan for violations of information disclosure rules. Five other executives were handed financial penalties and warnings.
The CSRC found that Jiuding Holding took control of the stock trading accounts of the five investors to sell shares in Jiuding Group, making a profit of 501.3 million yuan from August 2014 to May 2015. The regulator confiscated the profit, ruling that the conduct violated China’s securities law barring the use of other individuals’ stock accounts for share trading.
Contact reporter Tang Ziyi (email@example.com) and editor Nerys Avery (firstname.lastname@example.org).
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