Sep 09, 2021 05:22 AM

Haitong Securities Probed in Client’s Financial Reporting Fraud Case

Haitong has received six punishment and five warning letters from the CSRC since November
Haitong has received six punishment and five warning letters from the CSRC since November

China’s top securities regulators are probing Haitong Securities over allegations of misconduct in the brokerage house’s investment banking business, dealing another blow to the scandal-plagued company amid tightening scrutiny of financial intermediaries.

Haitong (600837.SH) received a notice from the China Securities Regulatory Commission (CSRC) disclosing the probe, which targets the broker’s role in the financial reporting fraud case of Aurora Optoelectronics Co. Ltd. (600666.SH), the company said Wednesday in a filing.

The commission said Haitong is under investigation on suspicion of negligence and violations of law and regulations when it served as financial adviser of Aurora Optoelectronics, formerly Southwest Pharmaceutical Co. Ltd. A person close to the CSRC said the regulator would already have evidence of violations when it announced the probe.

Haitong didn’t respond to a Caixin request for comment. Shanghai-based Haitong has been on regulators’ radar screens since late last year, mostly over its scandal-plagued investment banking business. The broker has received six punishment and five warning letters from the CSRC since November.

In March, Haitong was slapped with a one-year business ban on conducting bond investment advisory business because it allegedly helped defaulter Yongcheng Coal and Electricity Holding Group Co. Ltd. to sell bonds illegally. In January, China's interbank bond market regulator criticized Haitong for helping Yongcheng Coal in the illegal issuance of bonds and market manipulation.

State-owned Yongcheng Coal’s default on 1 billion yuan ($155 million) of bonds in November triggered a chain reaction that rattled the bond market and shook investors’ confidence in state-owned enterprises. The company and its executives were fined 5.3 million yuan in August for financial fraud after the high-profile default.

Aurora Optoelectronics was a long-time client of Haitong. In 2015, Aurora made a backdoor listing through an asset swap with Southwest Pharmaceutical. Heilongjiang businessman Zuo Hongbo and wife Chu Shuxia became the controlling shareholders of Aurora Optoelectronics. Haitong was the financial adviser on the deal.

Shortly after the listing, Aurora Optoelectronics’ business struggled, and in 2017 it started losing money, breaching a promise to shareholders of at least three years of profitability. The company posted a net loss of 1.7 billion yuan ($263 million) for 2018.

In May 2018, the securities regulator launched a probe of Aurora Optoelectronics for alleged financial reporting fraud. In July 2020, the CSRC confirmed multiple violations by Aurora Optoelectronics, including profit inflation of 668 million yuan between 2016 and 2018 and failure to properly disclose some major operating issues and transactions between connected parties. The company was slapped with the highest penalty, 600,000 yuan. Fifteen of its senior executives were also punished with fines or business bans.

In November, Aurora Optoelectronics’ auditor Dahua Certified Public Accountants was punished by the CSRC for negligence as a financial intermediary serving Aurora Optoelectronic.

Under industry rules, sponsorship institutions in mergers and restructuring deals could face a six-month business ban if they fail to properly deliver on their responsibilities and commit serious violations.

Contact reporter Han Wei ( and editor Bob Simison (

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