Financial fraud!The A share company may be forced to delist due to major violations

**: Company E.

Forced delisting for major violations!

Last night (December 8), *ST Botian received a prior notice of administrative punishment. The Beijing Securities Regulatory Bureau directly reprimanded the company's false record of information disclosure for a long time, with a large amount of false record and a high proportion, which seriously damaged the market order. If the company touches the situation of forced delisting due to material violations according to the facts determined in the administrative penalty decision, the company's listing will be terminated.

Forced delisting for major violations of the law is an important way to crack down on financial fraud and eliminate the "black sheep". Since the new delisting rules, with the continuous strengthening of supervision, mandatory delisting for major violations has continued to show its power.

It is worth noting that the recent financial work conference further emphasized the comprehensive strengthening of supervision. Industry insiders pointed out that the pace of investigation and removal of financial fraud will become increasingly intensive, and a number of fraudulent companies have received administrative punishment decisions, and those that have touched the situation of forced delisting in major violations have been quickly cleared.

Financial fraud touched on major violations and forced delisting

On the evening of December 8, *ST Botian (603603) disclosed the "Advance Notice of Administrative Punishment" issued by the Beijing Securities Regulatory Bureau. The "Notice" determined that the company touched the situation of forced delisting in a material violation of the law, and the company would be terminated from listing.

The Beijing Securities Regulatory Bureau determined that *ST Poten had falsely increased its operating income and profits by signing false entrustment payment agreements, concealing false creditor-debtor relationships, and using inspection and valuation vouchers without commercial substance to confirm the progress of the project, resulting in false records in the annual reports of 2017, 2018, 2019, 2020 and 2021 for five consecutive years.

Among them, in 2018, Poten Environment inflated its operating income by 109.8 billion yuan, accounting for 25% of the disclosed operating income for the current period;Taking into account the impact of related impairments, the profit is inflated by 50.1 billion yuan, accounting for 223% of the total disclosed profit for the current period.

At the same time, the accounting errors such as false amounts disclosed by the company in the relevant annual cases were retrospectively adjusted to the consolidated financial statements from 2017 to 2021 and the financial statements of the parent company, which involved the impact on the main financial indicators and consolidated balance sheets of each year.

The reporter paid attention to the fact that the illegal act of information disclosure falsely recorded by ST Botian lasted for a long time, and the amount of false record was large and the proportion was high, which seriously damaged the market order.

After years of financial fraud, *ST Poten not only inflated revenue and profits, but also caused serious distortions in the company's balance sheet, of which the balance sheet in 2020 and 2021 was falsely recorded in a total of 195.5 billion yuan, and accounted for 138% of the total amount of net assets at the end of the year disclosed in the two years.

There is no doubt that the above situation touches on Rule 9 of the Listing Rules of the Shanghai **Stock Exchange**5.Article 1(1), Article 95.2. Mandatory delisting for material violations as provided for in Item (4) of Paragraph 1 of Article 2:

"There are false records in the balance sheet for two consecutive years, and the total amount of false records in the balance sheet reaches more than 500 million yuan, and exceeds 50% of the total amount of net assets at the end of the year disclosed in the two years", and may be subject to mandatory delisting in violation of material violations.

"Zero tolerance" for financial fraud is a broad consensus in the market and a principle that regulators have always adhered to.

An overview of the various delisting cases that occurred during the year:

*ST Zeda and *ST Amethyst were found to have fraudulent issuance, and they were immediately cleared;

ST Xinyi, *ST Kaile, and *ST Huayi, which has just received the "Advance Notice of Administrative Punishment", have been found to have falsified annual reports to avoid delisting. Among them, *ST Xinyi was cleared in accordance with regulations, *ST Kaile was cleared by delisting at face value, and *ST Huayi was only one step away from delisting at face value

ST Hongtu is the first company in the Shanghai Stock Exchange to touch the quantitative index of major financial fraud delisting of "fraud amount + fraud ratio", and it is quickly eliminated through delisting at face value after clarifying the delisting expectation. This time, *ST Poten has also touched the portfolio indicator, which has fully alerted the market to the risk of forced delisting due to major violations.

The new delisting regulations specify four types of major illegal delisting situations, namely, fraudulent issuance in initial public offerings, fraudulent issuance in restructuring and listing, fraudulent issuance in annual reports to avoid delisting, and quantitative indicators of major financial fraud and delisting of "amount of fraud + proportion of fraud". In the past few years, it is these delisting situations that have played a role one after another, effectively eliminating a number of "black sheep".

It is worth noting that the "amount of fraud + proportion of fraud", which is a major illegal mandatory delisting indicator, is a highlight of the reform of the new delisting regulations, aiming to enrich the toolbox for the removal of major financial fraud companies under the "zero tolerance" policy. Although the fraudulent companies that touch this indicator do not meet the criteria for avoiding delisting by falsifying their annual reports, their financial fraud is large in amount, has a high proportion, and has lasted for many years, causing serious damage to market order and confidence. If it is allowed to stay in the market, it will bring a serious reverse demonstration effect, which is not conducive to the shaping of the market ecology.

Major illegal delisting is not the end, and the key minority will pay a heavy price

It must be made clear that the forced delisting of major violations of the law has never been the end of the treatment of major financial fraud, and both the company and the responsible entity will face heavy penalties.

Take *ST Poten as an example, which touched the mandatory delisting standard for major violations. Previously, the regulator has sent letters to *ST Poten for many years directly pointing to key financial subjects such as construction in progress and accounts receivable, but the company has not confessed the truth to the supervision in a timely manner, but has repeatedly concealed it, until it disclosed the announcement of the correction of accounting errors on March 31, 2023 under strong regulatory pressure, and retrospectively adjusted the consolidated financial statements and the financial statements of the parent company from 2017 to 2021.

Therefore, according to the "Advance Notice of Administrative Punishment", the Beijing Securities Regulatory Bureau intends to decide:

The relevant responsible persons such as *ST Botian, the then chairman, the general manager, and the chief financial officer were ordered to make corrections, warned and fined, with a total fine of 13 million yuan, and the actual controller Zhao Lijun was banned from entering the market for 7 years.

Previously, the exchange issued regulatory warnings for three violations such as the company's untimely disclosure of litigation matters and overdue disclosure of debts. However, for this financial fraud, the disciplinary punishment and accountability procedures will be initiated at the same time, and the relevant responsible entities will be punished with the highest level.

Editor-in-charge: Zhu Yumeng Proofreader: Wang Jincheng.

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