CSRC Imposes Investment Banking Restrictions on GF Securities

Source: Regulation Asia Editors, Regulation Asia 2020-07-13

The CSRC has also barred 14 GF Securities officers from investment banking for between 10 and 20 years. The brokerage firm failed to detect a $12.6bn fraud at drugmaker Kangmei Pharmaceutical.

The CSRC (China Securities Regulatory Commission) has barred GF Securities from engaging in sponsor business for six months and bond underwriting for 12 months, over the firm’s involvement in a CNY 88.6 billion (USD 12.6 billion) fraud at Kangmei Pharmaceutical.

Between 2016 and 2018, Chinese drug-making heavyweight Kangmei Pharmaceutical is said to have used false bank deposit slips to inflate its cash positions, forged documents for nonexistent business activities, and transferred company funds to related parties to trade in its own stock.

In May, the CSRC fined Kangmei CNY 600,000 and blacklisted six of its executives for their role in an accounting scandal. On Friday (10 July), the company’s former chairman and general manager Ma Xingtian was also arrested on suspicion of illegal disclosure of information.

GF Securities was the sponsor of Kangmei’s 2001 IPO, and has since helped the company with at least a dozen financing deals.

On top of the prohibitions on sponsor and bond underwriting business, the CSRC has barred 14 GF Securities officers from investment banking business for between 10 and 20 years, and ordered them to disgorge their compensation except for their basic salaries.

Caixin has reported that GF Securities recently replaced the head of its investment banking business and three assistants to the general manager. General manager Lin Zhihai resigned in April citing health reasons, but sources have indicated the resignation was related to the Kangmei fraud.

According to the CSRC, GF Securities has launched a “comprehensive self-examination” of its risk management functions, to address findings of a lack of due diligence, controls, supervision in its investment banking work.

China Securities Regulatory Commission

GF Securities

CSRC Imposes Investment Banking Restrictions on GF Securities

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