Fourteen accounting errors were made in an annual report, 29.9 billion yuan of currency funds were questioned for fraud, five times involved in the bribery storm, and the market value evaporated nearly 100 billion yuan in eight months. Baima shares Kangmei Pharmaceutical (600518.SH) faced the biggest crisis since its listing.
On April 30, 2019, after the opening of A-share market, Kangmei Pharmaceutical Co. ushered in a situation of double killing of debt and stock. Its stock price dropped to a halt and its final closing price was 9.45 yuan. Meanwhile, after a 20% decline in 15-Kangmei Bond, it was temporarily closed in the medium term, and finally closed down more than 11% after recovery.
In an interview with the media, Ma Xingtian, founder and chairman of Kangmei Pharmaceutical, said, Financial errors and financial fraud are two things. However, the amount of money as high as 29.944 billion, the amount of A shares to refresh the record, is it a financial error can be easily erased?
Market accountability, whether the audit procedures are inappropriate
Faced with huge accounting errors, intermediaries (accounting firms, banks) have become the first accountable object in the market. After Kangmei Pharmaceutical issued the Notice of Correcting Earlier Accounting Errors, Guangdong Zhengzhong Pearl River Accounting Firm (hereinafter referred to as Zhengzhong Pearl River) was immediately pushed to the top of the wind.
Looking back on the accounting errors, there are three problems that need to be clarified urgently. Firstly, according to audit practice, the end-of-term monetary fund needs confirmation by bank letter. Then, is it the banks fault that there is a false increase of 29.9 billion monetary funds on the banks books? Or did Kangmei Pharmaceutical tamper with the letter of inquiry? Or is it the auditors problem? Second, accounting errors in inventory, is the auditor negligent? Thirdly, in 2017, the accounting statements are distorted. Should the previous accounting statements be adjusted, and whether their monetary funds, inventory and income are real?
Several problems have proved that there are serious problems in the audit procedure of the financial data of Comex Pharmaceutical. According to the data, since the companys IPO in 2000, Zhengzhong Pearl River has provided its audit service for 19 years. During this period, Zhengzhong Pearl River has issued 17 audit reports of standard unreserved opinions, charging a total fee of 40 million yuan.
From 2001 to 2008, most of the remunerations paid by Kangmei Pharmaceutical Company to Zhengzhong Pearl River were around 300,000 yuan, which rose sharply to million level from 2009. From 2010 to 2012, audit remuneration was 1.2 million yuan, 1.8 million yuan and 2.3 million yuan, respectively. Beginning in 2013, Zhujiang of CSC also served as the internal control audit of Kangmei Pharmaceutical Industry, and received a total remuneration of 3.7 million yuan. By 2018, the total remuneration was 6.4 million yuan.
Such a high audit fee, but brought 29.9 billion accounting errors, Conmei Pharmaceutical late at night to deny financial fraud, claiming that it is financial errors, does that mean that the audit institutions or need to take more responsibility for their financial puzzles?
From an accounting point of view, signature accountant Yang Wenwei has become a key figure. Among the 18 financial report auditing reports of Kangmei Pharmaceutical, Yang Wenwei signed 12 times, He Guoquan 11 times, Ji Zhengxiong 5 times, Zhang Jingli 5 times, Xiong Yongzhong, Liu Huowang and Liu Qing respectively 1 time. At present, the annual report of 2017, which involves major accounting errors, is audited by Yang Wenwei and Zhang Jingli. At the time of Kangmei Pharmaceuticals IPO, the accountants responsible for financial audit were Yang Wenwei and Ji Zhengxiong.
Looking back on Kangmei Pharmaceuticals financial report of 2017, Zhujiang, CSC, gave an evaluation that the financial statements conform to accounting standards and fairly reflect the companys financial situation, operating results and cash flow; but in the annual report of 2018, Zhengzhong Pearl River issued a qualified audit report, expressing its reservations mainly because it was unable to establish the investigative matters filed by China Securities Regulatory Commission. The overall impact of Kangmei Pharmaceuticals annual financial statements in 2018 is due to the incomplete financial information of the related partiescapital exchanges and the construction projects under construction of some subsidiaries of Kangmei Pharmaceutical.
Thunderstorm threatens to cut the market value of hundreds of billions of dollars in half a year
In fact, the accounting thunderbolt of Camry Pharmaceutical is not without warning. On December 28, 2018, China Securities Regulatory Commission issued the Notice of Investigation to investigate Kangmei Pharmaceutical Industry on suspicion of information disclosure violation. It required the company to conduct self-examination and necessary verification. This self-examination became the direct fuse of Kangmeis mine explosion.
As early as the half-year report in 2018, some market investors questioned the high ratio of deposits and loans, the high proportion of pledges from major shareholders and the suspected manipulation of stock prices.
Some financial professionals told the Huaxia Times that companies like Comex Pharmaceutical, which have large deposits and large loans, are highly likely to forge money.
On October 22, 2018, the media reported that Wang Lianjun, the legal representative of Shenzhen Boyi Investment Development Co., Ltd., was taken compulsory measures by the public security economic investigation department for allegedly manipulating stock prices, involving the possible target of Kangmei Pharmaceutical Industry. According to the data, Wang Lianjun worked in Kangmei Pharmaceutical Industry before 2010, and Kangmei holds 90% of the equity of the investment company. Xu Dongjin, one of the controlling shareholders of the company, holds another 10%. Since then, Comex Pharmaceuticals share price has collapsed continuously. Its share price has dropped from the lowest of 2.188 yuan on October 9 to 1.034 yuan on November 30, and its market value has evaporated over 80 billion yuan at one time, nearly halved. The collapse was synchronized with the collapse of Royal Ting International, Shengxunda and Zhongzhou Holdings. The actual controllers of several stocks came from Guangdong Province, and they were closely related. Behind the effect of the collapse, the situation of joint venture of Chaoshan Band funds gradually emerged.
Earlier, it was investor Liu Zhiqings four-year reporting campaign. In 2014, Liu Zhiqing claimed that Kangmei Pharmaceutical had committed financial fraud and other illegal acts. However, the SFC responded that it had not found any illegal situation in Kangmei Pharmaceutical. He refused to accept the report and sued the SFC in court. The first instance ruled that the case would not be filed. The second instance and the final trial of the Supreme Court failed the investors lawsuit.
In December 2012, Joint China Securities Market Weekly published Kangmei Lies, questioning Kangmei Pharmaceuticals alleged fraud in land purchase and project construction, adding at least 1.847 billion yuan in assets, almost the sum of its net profit in 2002-2010. Behind its high growth, lies are likely to be supported by fraud, financing, refinancing and refinancing. However, Luo Yi, the chief medical officer of Shenwan, later questioned his lack of professionalism and impure motives. And it is also known as market muddy water.
Scandals keep cutting leek
Unlike Zhongneng Societe Generale, more domestic research institutes continue to express bullish voices. China Merchants Securities, Guoxin Securities, Everbright Securities, etc. continue to be optimistic, not stingy with such euphemisms as the integration effect of the whole Chinese medicine industry chain gradually appears, a lot of growth highlights and strong cash flow.
Since October 2018, Comex Pharmaceutical has been questioned about financial fraud, and its share price has been cut at the waist for a time, but since then it has still entered the upward channel. After the stock price crash in October of that year, Comme Pharmaceutical frequently published articles through media organizations, emphasizing its own business ability and past market performance to the market. On Jan. 5, 2019, Comex Pharmaceutical issued the Announcement on Disclosure of Progress of Strategic Cooperation Agreement, which once boosted the market.
According to Wind, in the first quarter of 2019, public funds held 6.0845 million shares of Kangmei Pharmaceutical Industry, compared with 8.4689 million shares at the end of 2018. The number of fund products held by Kangmei Pharmaceutical Industry dropped sharply from 177 to 10. Except for the purchase of 1 billion shares by China Securities Financial Asset Management Plan, the remaining funds were mostly passive funds held in captivity. At the same time, a large number of small and medium-sized investors entered the market. The total number of shareholders in Comex Pharmaceutical rose from 96,000 in September 2018 to 220,000.
Compared with public funds, the investment judgment of small and medium-sized investors is more dependent on market information. However, under the circumstances of frequent release of positive signals, inadequate execution of audit authority, and inappropriate disclosure of regulatory information, the market has not been able to know the real business situation of enterprises. Small and medium-sized investors who strongly depend on market direction often become the backlash of market thunder.
On the other hand, since the publication of Kangmei Lies, Zhongneng Xingye has to repeatedly respond to its short rumors. The focus of the market has shifted from self-evidences by listed companies to repeated responses by Zhongneng Xingye to its doubts about short-selling. Since then, Zhongneng Xingye has also fallen into silence. Kangmei Pharmaceutical has repeatedly rumored financial fraud, but it has always been only rumors, but few relevant investigations. Over the years, regulators have called for the importance of direct financing, but after investors participate in capital market financing, who can guarantee that they have a legitimate way to appeal when questioning public companies?
In addition to financial fraud being questioned, Kangmei Pharmaceutical has made several real bribes. However, despite the punishment of the bribery recipients, Ma Xingtian, the actual controller of Kangmei Pharmaceutical Industry, is safe and sound. Today, the local government still frequently inspects Kangmei Pharmaceutical Industry. Interestingly, Kangmei Pharmaceutical Industry was also licensed by the Jieyang Municipal Government in February 2019 as the key private backbone enterprises in Jieyang City.
In March 2019, China Judicial Documents Network published Jiang Jianping, former Secretary of Langzhong Municipal Committee of Sichuan Province, criminal judgment of first instance on bribery. In the judgment, Ma Xingtian, chairman of the company, was one of the bribers.
Prior to that, according to media reports, Camry Pharmaceutical was also involved in a number of other official corruption cases. From 2000 to 2012, Kangmei Pharmaceutical Company sought to apply for public offering of stocks or listing. The Bribery Provincial Securities Regulatory Commission issued Li Quan, a director of the issuance Audit Department of the Supervisory Department and deputy director of the GEM Issuance Supervisory Department.
From 2000 to 2014, Ma Xingtian, chairman and general manager of Kangmei Pharmaceutical, bribed Wan Qingliang, former Standing Committee of Guangdong Provincial Committee and former Secretary of Guangzhou Committee, involving HK$2 million and RMB$600,000. From 2004 to 2011, Ma Xingtian bribed Chen Hongping, Secretary of Jieyang Municipal Party Committee, totaling HK$5 million. From 2014 to 2015, Ma Mou, general manager of Kangmei Pharmaceutical Industry, and Li Mou, deputy general manager of Kangmei Pharmaceutical Industry, bribed Cai Ming, former director of the Drug Safety Administration of Guangdong Food and Drug Administration, three times, totaling HK$300,000. Although most of the bribery recipients have been jailed, the bribers are still playing a big role in the capital market. Kangmei Pharmaceutical once became a 100 billion Chinese medicine empire and what investors call fairy white horse stock, which is getting deeper and deeper in many bribery scandals. Source: Author of China Times: Responsible Editor of Chang Chen Feng, Shi Province: Su Honghong_NBJ9980
From 2000 to 2014, Ma Xingtian, chairman and general manager of Kangmei Pharmaceutical, bribed Wan Qingliang, former Standing Committee of Guangdong Provincial Committee and former Secretary of Guangzhou Committee, involving HK$2 million and RMB$600,000.
From 2004 to 2011, Ma Xingtian bribed Chen Hongping, Secretary of Jieyang Municipal Party Committee, totaling HK$5 million.
From 2014 to 2015, Ma Mou, general manager of Kangmei Pharmaceutical Industry, and Li Mou, deputy general manager of Kangmei Pharmaceutical Industry, bribed Cai Ming, former director of the Drug Safety Administration of Guangdong Food and Drug Administration, three times, totaling HK$300,000.
Although most of the bribery recipients have been jailed, the bribers are still playing a big role in the capital market. Kangmei Pharmaceutical once became a 100 billion Chinese medicine empire and what investors call fairy white horse stock, which is getting deeper and deeper in many bribery scandals.