“Investors Network” Meng Xing

Another listed company was punished by the regulatory authorities for financial fraud.

On December 6, Ronglian Technology Group Co., Ltd. (hereinafter referred to as “Ronglian Technology”, 002642.SZ) issued an announcement stating that the company received the “Advance Notice of Administrative Penalties and Market Ban” issued by the Beijing Regulatory Bureau of the China Securities Regulatory Commission on December 5.

According to the “Notice”, the investigation of Ronglian Technology's suspected illegal information disclosure violation has been completed by the Beijing Securities Regulatory Bureau. According to law, the Beijing Securities Regulatory Bureau plans to impose administrative penalties on those involved and adopt market entry bans.

According to data, Ronglian Technology is a provider of enterprise cloud computing and big data professional services. The company's main business includes three segments: enterprise services, the Internet of Things and big data, and life science.

Profit increased by 200 million dollars in three years

According to the regulatory authorities, from 2016 to 2018, Ronglian Technology did not carry forward costs in a timely manner for issued products included in orders with confirmed revenue, and some maintenance spare parts that were issued and actually used were not carried forward in a timely manner. As a result, Ronglian Technology's 2016, 2017, and 2018 annual reports contained false records, reducing costs by 462635 million yuan, 56.8838 million yuan, and 97.2505 million yuan, respectively, and inflated profits by 462635 million yuan, 56.8838 million yuan, and 97.2505 million yuan, respectively. Ronglian Technology's total inflated profit over three years was about 200 million yuan.

The Beijing Regulatory Bureau believes that the above actions of Ronglian Technology are suspected of constituting false records of information disclosure. Wang Donghui, then chairman of Ronglian Technology, Zhang Tong, then general manager, and Ju Haitao, then financial director, bear the main responsibility for the authenticity, accuracy, and completeness of Ronglian Technology's financial reports and are not diligent and conscientious. According to relevant laws and regulations, the above three people are the supervisors directly responsible for Ronglian Technology's information disclosure violations.

In the end, the Beijing Regulatory Bureau plans to decide to warn Ronglian Technology and impose a fine of 500,000 yuan; give warnings to Wang Donghui, Zhang Tong, and Ju Haitao, and impose 250,000 yuan each.

In addition, Wang Donghui, Zhang Tong, and Ju Haitao have long neglected to perform their management duties on Ronglian Technology's financial work and have not been diligent and conscientious. Ronglian Technology has disclosed false information in its annual reports for many years, and the amount of money involved has increased year by year. The circumstances are serious. The Beijing Regulatory Bureau plans to decide to ban three people including Wang Donghui, Zhang Tong, and Ju Haitao from entering the securities market for 5 years.

Ronglian Technology said that the company sincerely apologizes to investors for this. The company will learn lessons, strengthen the standardization of internal governance, improve the quality of information disclosure, strictly abide by relevant laws and regulations, and fulfill its information disclosure obligations truthfully, accurately, completely, in a timely and fair manner.

On December 9, Ronglian Technology issued another announcement stating that the company's board of directors recently received a written resignation report from the company's independent director Wulina. Ms. Wulina resigned as an independent director of the company's 6th board of directors, chairman of the Board of Audit Committee, and member of the Remuneration and Assessment Committee due to personal reasons, and will no longer hold any position in the company after her resignation.

Transfer of control of the company by the original controller

Ronglian Technology actively “acknowledged” the act of “management omission” as early as April 2021. At the time, Ronglian Technology issued the “Notice on Correction of Previous Accounting Errors and Retroactive Adjustments”, using the retroactive restatement method to proactively correct accounting errors involving cases.

According to the announcement, in the process of preparing the 2020 annual report, the company discovered through self-inspection that the company had omissions in inventory management from 2016 to 2018, resulting in insufficient cost carry-over for some orders.

According to the annual report released by Ronglian Technology before the adjustment, from 2016 to 2018, the company achieved net profit of 240 million yuan, -202 million yuan, and -1,361 million yuan respectively; the adjusted annual report showed that from 2016 to 2018, the company achieved net profit of 194 million yuan, -259 million yuan, and -1,458 million yuan respectively.

It should be noted that shortly before the company issued the financial report adjustment announcement, Ronglian Technology also announced a change in the company's control.

In March 2021, Ronglian Technology issued an announcement stating that the company received notifications from the original controlling shareholders and actual controllers Wang Donghui and Wu Min that Wang Donghui and Wu Min agreed to transfer the first batch of company shares to Shandong Jingda Technology Industry Development Co., Ltd. (hereinafter referred to as “Shandong Jingda”). The transfer was completed on March 25, 2021. The total number of shares transferred was about 26.8032 million shares, and the nature of the shares was unlimited.

According to the announcement, according to the relevant agreements of the “Share Transfer Framework Agreement” and the “Voting Rights Entrustment Agreement” signed by Wang Donghui and Wu Min and Shandong Jingda, Wang Donghui and Wu Min intend to transfer their company shares of about 53.6064 million shares to Shandong Jingda in two batches, and entrust the voting rights of all remaining shares of listed companies other than those involved in the first batch of agreed transfers to Shandong Jingda for exercise.

Prior to this equity transfer, Wang Donghui and Wu Min together held 21.66% of Ronglian Technology's shares. Following this equity transfer, Shandong Jingda directly held 26.8032 million shares of the company, accounting for 4.00% of the company's total share capital; Shandong Jingda's total shares with voting rights in listed companies totaled about 145 million shares, accounting for 21.66% of the company's total share capital. Shandong Jingda became the controlling shareholder of the company.

In other words, although Wang Donghui and Wu Min, the original controllers of Ronglian Technology, only sold part of their shares, they transferred all voting rights held in the company together.

It is worth mentioning that in February 2021, Wang Donghui and Wu Min, co-actor, and Shandong Jingda and Huatai Securities also signed a “Share Transfer Agreement” on the cancellation, repayment and transfer of their share pledges. Through equity transfers, part of its pledged debt with Huatai Securities is repaid, and stock pledge risks are reduced.

Directors abstained from voting on annual reports

In addition to the issue of financial fraud receiving market attention, the incident where Ronglian Technology director abstained from voting on the 2022 annual report also caused a lot of discussion in the market.

In April of this year, Ronglian Technology issued an announcement stating that the company held the 24th meeting of the sixth board of directors on April 19, 2023 to review the company's “2022 Annual Report”. Among them, Director Fang Yong abstained from voting on the “2022 Annual Report”.

According to the announcement, there are two reasons for Fang Yong's abstention: First, given that Ronglian Technology's 2022 financial report was audited and the Credit Accounting Firm (Special General Partnership) issued a qualified audit report, and as of the company's 2022 financial report board resolution date, there are no results of the investigation filed by the China Securities Regulatory Commission. Fang Yong himself is unable to judge the possible impact of the filing investigation results on financial reports.

Second, in mid-early February 2023, regarding the specific instructions in the company's response to the letter of concern from the Shenzhen Stock Exchange, I requested clarification from the company to make a decision, but so far there has been no full response. As a result, Fang Yong is unable to judge the reasonable and necessary nature of the company's management actions and the possible consequences thereof.

Regarding the second reason for Fang Yong's abstention, Ronglian Technology received a warning letter from the Beijing Securities Regulatory Bureau in January of this year. After investigation, the company transferred a total of 29.56 million yuan and 15.42 million yuan to suppliers Beijing Shunlian Technology Co., Ltd. and Beijing Yunqi Technology Co., Ltd. in 2019 and 2021 under the names of advance payments, etc., respectively. All of these payments were subsequently transferred to the accounts of Beijing Jizhi Technology Co., Ltd., controlled by major shareholder Wang Donghui.

The above matters constitute the use of funds by related parties, and the relevant capital transactions constitute related transactions, but Ronglian Technology has failed to fulfill related transaction approval procedures and information disclosure obligations. The disclosed 2019 annual report and other announcements did not include the financial transactions of the related parties mentioned above, and the disclosure of relevant information was inaccurate.

The Shenzhen Stock Exchange is also concerned about this matter. It first sent a letter of concern to Ronglian Technology in February, and then notified Ronglian Technology and related parties in April, criticize and punish Ronglian Technology and related parties. According to the announcement, the above money has been refunded.

Furthermore, in May of this year, the Shenzhen Stock Exchange issued an inquiry letter on the 2022 annual report to Ronglian Technology. It mentioned the company's director Fang Yong's abstention and requested the company to verify the relevant situation.

Ronglian Technology replied that in August 2022, the company underwent an on-site inspection by the Beijing Securities Regulatory Bureau. During the process of the Beijing Securities Regulatory Bureau visiting the company for on-site inspection, finding problems, and the company's management to respond to the rectification, Fang Yong left the company after applying to resign as a company executive due to personal reasons in September 2022, but continued to remain a director of the company.

Regarding the issue of capital consumption by the company's related parties, Ronglian Technology said that the company's management reflected on the problems revealed during the incident. In particular, after the full amount of advance payments in 2019 was returned to the company one after another, it did not pay enough attention or attention to verifying the flow of capital and business abnormalities, and there were omissions and errors in the verification of related transactions.

At the same time, the company stated that it has always attached great importance to the questions raised and information required by the directors in carrying out their duties, and has given them full support and cooperation. In the future, in response to the issues verified by the supervisory authorities, the company will further strengthen review, reflection, review and punishment, strive to reduce various compliance risks, and effectively strengthen reporting and communication between the company's management and the board of directors to comply with the directors' various due diligence requirements. (Produced by Thinking Finance) ■