There’s a saying that, everyone is leek. Life is short and we should cut the leeks(originally meaning that the leeks reaching the peak of growth could be harvested, now metaphorically, institutions, funds, large investors sell stocks to lead to the stock market(or stocks) down and operate for profits) in time(revised from an ancient poetry in China).
Recently, Luckin (one Chinese Coffee Brand) failed in cutting leeks, self-exposed false trading 2.2 billion RMB, leaving the miserable U.S. stock and the pitiful individual investors.
The next day, the order of Luckin boomed! Additionally, Luckin became so-called national hope that earn money from the foreigner to benefit for Chinese from some netizen’ s point of view...Don’t you think we were one of those who suffered loss?
Here introduce the background to you first.
What is cutting leeks? As is known to all, as long as you don’t dig out the root, the leek can grow again after being cut. Similarly, in the securities market, some investors manipulate the securities and the stock price for arbitrage, making individual make wrong judgment and suffer loss which is not based on the normal market fluctuations, leading to the embarrassing situation that individual investors’ money are harvested like leeks.
Saying that Luckin ‘cut the foreigner’s leek’ is due to its $125 million financing from BLACKROCK, the largest U.S. asset managing capital, and its $695 million U.S. listing last year. Since Luckin started running in China, it has been known for its steep discounts of 1.8 and 2.8 percent. Now Luckin has been selling 2.2 billion RMB worth of fake deals, leading to a large online discussion about ‘cutting capitalist leeks, Ruyangmao and subsidizing domestic consumers’.
Is this the national hope? No! Have overall vision, know the essence through the phenomenon, in order to avoid becoming the leeks being cut but still cheering!
Here’s a key word: fake trading, as the name implies, refers to unreal trading, which has been resisted in the economic market, and is a bad practice that cannot be tolerated by Chinese legislation. You know, fake transactions of listed company often lead to the problem of accounting reporting fraud.
Enron, an energy giant company ever, because of the financial fraud scandals in 2001, became the biggest bankrupt corporation in America from the seventh in ‘fortune 500’ in Fortune Magazine. In this event, the company Enron finally bankrupted, the former chief executive was sentenced to 24 years in prison, and the Andersen accounting firm, one of the five world famous accounting firm, lost its reputation due to help of fraud and finally disappeared.
False accounting statements, misleading, is not only not conducive to the development of the company running, but also damage the interests of shareholders and other stakeholders. Additionally, false accounting statements will disrupt the financial and accounting management system and the financial securities market order of China, leading to the lack of mas trust of operation mechanism that economic market is based on, which may harm China’s market economy construction.
Not to mention the many large Chinese institutional investors of Luckin such as CENTURIUM CAPITAL, JOY CAPITAL, LEGEND CAPITAL and CICC, as Chinese Concept Stock, Luckin is also favored by many Chinese and ethnic Chinese in U.S. stock market. If Luckin’s share price slumps, our compatriot will equally lost heavily! At the same time, Luckin scandal also caused many innocent Chinese Concept Stocks reaching the decline limit, which has seriously damaged the reputation of domestic companies overseas...Chinese not only lose money, but also overdraft credibility! Is Luckin still ‘national hope’? Do not cheer up when being cut as leek!
Aimed at the financial statement fraud of Luckin, on April 3, the China Securities Regulatory Commission (CSRC) issued a strong condemnation of Luckin’s failure to fulfill its obligation to disclose information, and stated that it would investigate and resolutely crack down on securities fraud.
Can US-listed be managed by China?
Yes, thanks to the ‘long-arm jurisdiction’ granted to Securities Supervision and Administration Institution under the new securities law. The new securities law stipulates that the securities issuance and trading activities outside China shall be punished by the securities law, as long as the domestic market order is disturbed and the legitimate rights and interests of domestic investors are damaged.
Here’s a key word: disclosure obligations. According to the securities law and the regulation on management method of information disclosure of listed companies, the information disclosed by the information disclosure obligors such as the issuer(the company that issues securities), the directors, supervisors and senior managers of listed companies, shall be true, accurate, complete, concise, clear and easy to understand, and there shall be no false records, misleading statements or major omissions. For example, Jian Liu, the chief operating officer of Luckin in this case(i.e. executive), is required to fulfill the obligation of information disclosure in accordance with legislation.
Those who violate the obligation of information disclosure and disclose false financial accounting report will be held accountable at all levels in China.
Civil compensation responsibility is unavoidable!
If the information disclosure obligor fails to disclose the information in accordance with the provisions, or if there are false records, misleading statements or major omissions in the published securities issuance documents, periodic reports, interim reports or other information disclosure materials, which cause investors to suffer losses in securities trading, the obligor shall bear the liability for compensation. The controlling shareholders, actual controllers, directors, supervisors, senior managers and other directly liable persons of the issuer, as well as the sponsors, the underwritten securities company and its directly liable persons shall be jointly and severally liable for compensation with the issuer, unless they can prove that they are not at fault(article 85 of the securities law).
Disclosing false accounting report, not only the information disclosure obligor shall bear the liability for the loss of investors, but also the shareholders, actual controllers, directors, supervisors, senior managers and other personnel shall bear liability if they can not prove they are not at fault.
Large amount of fine administratively is certainty!
Where there are false records, misleading statements or major omissions in the reports submitted or in the information disclosed by the obligor, the obligor shall be ordered to make corrections, given a warning and imposed a fine of not less than 1 million RMB but not more than 10 million RMB;The person in charge who is directly responsible and other persons who are directly responsible shall be given a warning and imposed a fine of not less than 500,000 RMB but not more than 5 million RMB. Where the controlling shareholder or the actual controller of the issuer organizes or instigates the above-mentioned illegal acts or conceals relevant matters, which leads to the aforesaid circumstances, the controlling shareholder or the actual controller of the issuer shall be fined not less than 1 million RMB but not more than 10 million RMB; The persons in charge who are directly responsible and other persons who are directly responsible shall be fined not less than 500,000 RMB but not more than 5 million RMB(article 197 of the securities law).
An issuer that conceals important facts or fabricates material false contents in the securities issuance documents published by it, and has not issued securities, shall be fined not less than 2 million RMB but not more than 20 million RMB; Those who have issued securities shall be fined not less than 10 percent but not more than one time of the amount of funds illegally raised. The persons in charge who are directly responsible and other persons who are directly responsible shall be fined not less than 1 million RMB but not more than 10 million RMB(article 181 of the securities law).
Information disclosure obligor disclosing false accounting report will face serious administrative penalty, in addition to be ordered to correct and given warning, and will be imposed a fine of 1 million ~ 10 million RMB!
If fabricating financial accounting report when issuing securities, the degree of harm is more serious and the penalty shall be severer. The new securities law implemented on March 1 this year increases the amount of administrative penalties for fraudulent issuance of securities dozens of times! If securities have not yet been issued, the maximum penalty amount shall be changed from 600,000 RMB to 20 million RMB; For issued securities, the maximum penalty amount shall be changed from ‘5% of the amount illegally raised’ to ‘one time of the amount illegally raised’. For example, a listed company that raised 1 billion RMB in an IPO may now face 1 billion RMB fine if it used to face 50 million RMB fine. The severity of the punishment is staggering!
Finally, the risk of being prosecuted criminally is high!
【the crime of illegal disclosure or not disclosing important information】If a company provides the shareholders and the public with a false financial and accounting report in which it conceals important facts, or conceals another important information, thus seriously prejudicing the interests of the shareholders or other persons, or there are another severe circumstance, the person-in-charge directly responsible and other persons directly responsible of the company shall be sentenced to fixed-term imprisonment of not more than three years or criminal detention and concurrently or independently, to a fine of not less than 20,000 RMB and not more than 200,000 RMB.(article 161 of the criminal law)
【the crime of fraudulent issuance of stocks or bonds】A person who, in issuing shares or bonds, conceals important facts or fabricates major false contents in the prospectuses, share subscription or measures on raising bonds for a company or enterprise, shall be sentenced to fixed-term imprisonment of not more than five years or criminal detention and concurrently or independently, to a fine of not less than 1% and not more than 5% of the amount of the fund raised illegally if the amount involved is huge or the result is serious or any other serious circumstance exists(article 160 of the criminal law).
If a company or enterprise fails to fulfill the obligation of disclosing important information in accordance with laws and regulations and seriously damages the interests of shareholders or other people, it shall not only face the above administrative responsibilities, but also be convicted of the crime of illegally disclosing or not disclosing important information which can be placed on file to prosecute the case in eight kind of circumstances. For example, in first case, losses are decorated as profit in the company’s financial accounting report. In second case, the inflated profit reaches more than 30 percent of the total profit disclosed in the current period. In third case, the amount involved in major litigation, arbitration, guarantee, affiliated transaction or other major matters not disclosed in accordance with the provisions or the cumulative amount for 12 consecutive months accounting for more than 50% of the net assets. The aforementioned three circumstances can be placed on file to prosecute the case!
The crime of fraudulent issuance of stocks and bonds is aimed at the act of fraud in the prospectus, subscription book and bond raising method. In general, investors hope to single out a company running well with high efficiency and abundant capital, and the prospectus, the share subscription and the bond raising method are the most direct ways for social public to understand the company. If counterfeiting on these files and deceiving the public, it cannot help even if the investors have sharp eyes. The serious consequences of fraud is obvious, so as long as there is a serious fraud or concealment in the prospectus, subscription, bond raising method, the actor may be suspected of fraudulent issuance stocks or bonds! For example, Luckin, the protagonist of this article, went public in the United States in May 2019, and now was revealed that it inflated the transaction volume by 2.2 billion RMB between the second quarter and the fourth quarter of 2019, which lasted throughout the issuance period. Luckin shall be the crime of fraudulent issuance of stocks and bonds according to Chinese legislation but the involved investors are pitiful......
Former premier Rongji Zhu - known for his gnomic, wrote one school motto - do not cook the books - for the National Accounting Institute in Shanghai and Beijing in 2001. After 20 years, the illegal and criminal behavior of financial fraud was honored as ‘national hope’, which is really embarrassing...
As the famous financial writer Xiaobo Wu said, ‘Recognize the beauty of business’. We should also recognize the ‘beauty of securities’ in the stock market, but the premise is to be able to distinguish and clearly resist the ugly. Legislation is our forever banner. Only by being law - abiding and try to achieve the beauty of securities, can we show the true nation hope!
