At the end of January this year, muddy water company, a famous shorting agency, released a shorting report, which exposed the fraud of financial and operational data of Ruixing coffee since the third quarter of 2019, exaggerating the order quantity of stores and net selling price of commodities. On April 2, Ruixing coffee admitted financial fraud, saying it had forged 2.2 billion yuan of trading volume between the second quarter and the fourth quarter of 2019. Since then, Ruixing coffees share price has plummeted and its market value has shrunk rapidly.
Financial fraud has always been the most severely regulated illegal act in American securities market. Financial fraud is a typical act of securities fraud, which directly violates the securities law of the United States, and the relevant violators will be subject to the administrative penalty of the sec. The SEC has zero tolerance for this kind of behavior, and will generally impose a high price fine on those who are serious and transfer it to the relevant law enforcement agencies.
Before that, the U.S. stock market had already delisted due to fraud. In 2001, Enron company in the United States was exposed to financial fraud, and finally was fined 500 million US dollars, bankruptcy and delisting. After a series of major financial frauds such as Enron, the Sarbanes Oxley Act (Sarbanes Oxley Act) was introduced in 2002 in the United States, which strengthened the requirements for internal control, audit and compliance of the company. The Sarbanes Oxley Act has significantly increased the penalties for fraud violations. Corporate executives may face criminal penalties. Crimes of intentional securities fraud can be sentenced to up to 25 years in prison, and the penalties for individuals and companies committing fraud can be up to $5 million and $25 million, respectively.
Nasdaqs delisting system is relatively clear. When an enterprise fails to meet the requirements of continuous listing, it will be delisted passively. Generally, the relevant departments of NASDAQ will make a decision to terminate the stock trading of the listed company after investigation, notify the listed company, and provide an opportunity for the listed company to hear and file a lawsuit step by step. In terms of delisting criteria, in addition to quantitative indicators such as trading and operation, there are compliance indicators, mainly on the internal governance of the company.
According to the listing rules, the stock exchange takes delisting measures for the listed companies with financial fraud, which is a routine practice of self-regulation.
Even if Ruixing delisted, it will not shake the markets confidence in zhonggai shares
After Ruixing coffee, concerns about the collective trust crisis in Chinas equity market have escalated. Some views suggest that it may be more difficult for Chinese companies to list in the United States, and listed companies may face revaluation or even delisting.
In fact, Ruixing coffees financial fraud is only a case. It is more related to the internal control and management issues of the enterprise itself. Ruixing does not represent all Chinese equity companies. Investors have not lost faith in all Chinese equities either.
On May 8, jinshanyun, a Chinese enterprise, was successfully listed on NASDAQ in the United States. On the first day of listing, its share price rose by more than 40%, with a total market value of US $4.774 billion. Investors were also enthusiastic about the subscription of jinshanyun, with an over issuance of 20%, sweeping away the haze of Chinese shares brought by Ruixing coffee.
Cross border listing has long been regarded as a win-win model. On the one hand, enterprises can finance in the broader overseas capital market, and at the same time, they can also accept the competition and supervision of the overseas market, improve the level of operation and governance, and achieve long-term development. On the other hand, the landing of high-quality enterprises in the overseas market also brings more investment targets to local investors, enriches investment options in the local market and improves investment returns. Therefore, the case of Ruixing coffee will not stop the cross-border listing of Chinese enterprises.
Under the framework of IOSCO multilateral memorandum and other cooperation, China Securities Regulatory Commission (CSRC) has provided relevant audit working papers of 23 overseas listed companies to a number of overseas regulators, including 14 to CSRC and PCAOB. In addition, in October 2019, China and the United States reached a consensus on the transfer of audit working papers of Listed Companies in the United States audited by Hong Kong accounting firms and deposited in the mainland of China. At present, the cooperation channels are unblocked.
For the Chinese accounting firms that PCAOB requires to be registered in PCAOB, the cooperation between the two sides has never stopped, and they have been looking for an inspection scheme that can be accepted by all parties. In 2013, China Securities Regulatory Commission, the Ministry of Finance and PCAOB signed a memorandum of understanding on law enforcement cooperation, and provided four audit working papers to PCAOB. From 2016 to 2017, China and the United States carried out a pilot inspection of a Chinese accounting firm registered in PCAOB. The Chinese team assisted PCAOB to inspect the quality control system of the accounting firm and the audit working papers of three listed companies in the United States, trying to find an effective inspection way. The CSRC said the cooperation between the two sides is effective. Since 2018, in order to continue to promote audit supervision cooperation and maintain communication, China has repeatedly proposed to PCAOB specific proposals for joint inspection of accounting firms, the latest of which is April 3 this year, referring to the practice of international audit supervision cooperation. China Securities Regulatory Commission also said it looked forward to receiving a response as soon as possible and further cooperation with PCAOB. Under the mode of cross-border supervision and cooperation of national regulators, cross-border illegal behaviors will be more severely attacked, which means that the survival mechanism of listed companies will be more prominent, only high-quality and compliant companies can stay in the capital market, and the legitimate rights and interests of investors in various countries will be better protected. Beijing News reporter Gu Zhijuan Editor Li Weijia proofread by Yang Xuli source: Beijing News Editor in charge: Yang Bin_ NF4368
Under the mode of cross-border supervision and cooperation of national regulators, cross-border illegal behaviors will be more severely attacked, which means that the survival mechanism of listed companies will be more prominent, only high-quality and compliant companies can stay in the capital market, and the legitimate rights and interests of investors in various countries will be better protected.
Beijing News reporter Gu Zhijuan Editor Li Weijia proofreader Yang Xuli