Corporate Fraud Prosecutions In China
Case 1: Kangmei Pharmaceutical Accounting Fraud
Facts:
Kangmei Pharmaceutical, a large publicly traded pharmaceutical company, overstated its cash holdings by billions of yuan and inflated profits between 2016–2018.
Executives submitted false financial reports to regulators and investors to manipulate stock prices.
Legal Issues:
Misrepresentation of financial statements.
Market manipulation and investor deception.
Bribery charges against some executives.
Court Outcome:
Chairman Ma Xingtian sentenced to 12 years in prison and fined.
Kangmei ordered to compensate tens of thousands of investors.
Significance:
One of the largest accounting fraud cases in China.
Established that top executives can face severe criminal penalties for false reporting and market manipulation.
Strengthened investor protection and enforcement of corporate financial disclosure laws.
Case 2: Dandong Xintai Electric IPO Fraud
Facts:
Dandong Xintai Electric misrepresented its financial statements during its IPO on the Shenzhen ChiNext board.
The company inflated profitability and concealed debts to appear financially stronger than it was.
Legal Issues:
Fraudulent issuance of shares (IPO fraud).
False disclosure of financial information to investors and regulators.
Court Outcome:
The company was fined, executives sentenced to 2–3 years in prison, and the company delisted from the stock exchange.
Significance:
Demonstrated zero tolerance for IPO-stage financial misrepresentation.
Clarified that executives are personally liable for fraudulent disclosures during public offerings.
Case 3: E-Zubao Internet Fund-Raising Fraud
Facts:
E-Zubao, an online investment platform, claimed to invest in leasing financial products.
It promised high returns to investors but operated like a Ponzi scheme, misappropriating funds.
Legal Issues:
Illegal absorption of public deposits.
Fund-raising fraud by deception and misappropriation.
Court Outcome:
Executives and operators were prosecuted and sentenced to long prison terms, with assets confiscated.
The case involved thousands of investors and billions of yuan.
Significance:
Highlighted risks in internet-based finance.
Emphasized that fintech platforms are not immune from traditional fraud and fund-raising laws.
Case 4: Laoma Le Pension Fund Fraud
Facts:
Laoma Le attracted investments from the elderly under the pretense of safe pension products.
Funds were diverted into unrelated business ventures, leaving investors unpaid.
Legal Issues:
Illegal public fund-raising.
Fraudulent misrepresentation to obtain money from vulnerable investors.
Court Outcome:
Main perpetrator sentenced to life imprisonment, others to long prison terms.
Court required restitution to defrauded investors.
Significance:
Example of targeting vulnerable populations through fraudulent investment schemes.
Reinforced strict criminal penalties for large-scale fund-raising fraud.
Case 5: Stock Manipulation by Zhangjiagang Yishidun
Facts:
A company and its executives manipulated futures and stock markets to profit illegally.
Used technical knowledge and insider advantages to distort market prices.
Legal Issues:
Market manipulation and securities fraud.
Exploitation of trading systems for personal gain.
Court Outcome:
Defendants convicted and sentenced to imprisonment and fines.
Courts emphasized investor protection and market fairness.
Significance:
Showed that sophisticated market manipulation, not just basic accounting fraud, is prosecutable.
Reinforced the principle that all market participants must comply with securities laws.
Case 6: Tsinghua Unigroup Securities Fraud (Example of Recent Tech Sector Fraud)
Facts:
Executives at Tsinghua Unigroup were found to have inflated revenues and concealed liabilities to maintain stock price and attract investors.
Misstatements persisted across multiple financial quarters.
Legal Issues:
False accounting, fraudulent disclosure, and investor deception.
Court Outcome:
Executives received 3–7 years imprisonment, company fined, and required to compensate shareholders.
Significance:
Demonstrated increased scrutiny of tech companies in China’s capital markets.
Highlighted that repeated misrepresentation can escalate criminal liability.
Key Observations Across Cases
Severe criminal liability for executives in both accounting and fund-raising fraud.
Investor protection is a primary concern; courts often mandate restitution.
Both public companies and private investment platforms are under strict scrutiny.
Internet and fintech frauds are treated with equal severity as traditional corporate fraud.
Delisting, fines, and imprisonment are standard punitive measures for corporate fraud.
These six cases show a broad range of corporate fraud in China, from traditional accounting fraud in public companies to fintech and fund-raising fraud affecting ordinary citizens.
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