Source: Broker China

On the evening of March 18, Evergrande Real Estate issued a notice on receiving administrative penalties and advance notice of market bans from the China Securities Regulatory Commission. It will impose administrative penalties such as fines and market bans on Evergrande Real Estate, Xu Jiayin, Xia Haijun, Pan Darong, Pan Hanling, Ke Peng, Zhen Litao, and Qian Cheng.

According to the announcement, Xu Jiayin, then chairman of Evergrande Real Estate, and Xia Haijun, then vice chairman of the board of directors and president of China Evergrande, and others made decisions and organized the execution of financial fraud, etc., which were particularly bad and the circumstances were particularly serious. Xu Jiayin and Xia Haijun were fined 47 million yuan and 15 million yuan respectively, and banned them from entering the securities market for life.

Meanwhile, Evergrande Real Estate was also ordered to make corrections, given a warning, and fined 4.175 billion yuan.

Three facts about violations

As determined by the Securities Regulatory Commission, Evergrande Real Estate, Xu Jiayin, Xia Haijun and others are suspected of breaking the law are mainly the following three:

First, there are false records in the 2019 and 2020 annual reports disclosed by Evergrande Real Estate. Through early revenue recognition, Evergrande Real Estate inflated revenue of 213.989 billion yuan in 2019, accounting for 50.14% of current revenue, corresponding inflated costs of 173.267 billion yuan, and inflated profit of 40.722 billion yuan, accounting for 63.31% of total current profit; in 2020, Evergrande Real Estate's inflated revenue of 35.157 billion yuan, accounting for 78.54% of current revenue, corresponding to an inflated cost of 298.868 billion yuan The profit was $51.289 billion, accounting for 86.88% of the total profit for the period.

Second, Evergrande Real Estate's public offering of corporate bonds is suspected of being fraudulently issued. According to the Securities Regulatory Commission, the four bonds issued by Evergrande Real Estate in 2020, with a total amount of 12.6 billion yuan and bonds with a total scale of 8.2 billion yuan issued on April 27, 2021, are suspected of being fraudulently issued because the issuance documents announced during the issuance process separately quoted data relating to the 2019 and 2020 annual reports with false records.

Third, Evergrande Real Estate failed to disclose relevant information in a timely manner in accordance with regulations. This includes: Evergrande Real Estate did not disclose the 2021 Annual Report, 2022 Interim Report, and 2022 Annual Report as scheduled; failure to disclose major litigation and arbitration situations in accordance with regulations; and failure to pay maturing debts in accordance with regulations.

The Securities Regulatory Commission notes that on August 10, 2023, Evergrande Real Estate publicly disclosed its 2021 Annual Report, 2022 Interim Report, and 2022 Annual Report. The disclosure dates for these periodic reports all exceeded the required submission and announcement dates. Evergrande Real Estate failed to disclose regular reports on time in accordance with the law.

In terms of major litigation and arbitration, as of August 31, 2023, Evergrande Real Estate had a total of 1,533 major litigation and arbitration matters (involving more than 50 million yuan) that were not promptly disclosed in accordance with regulations since January 1, 2020, involving an amount of 431,259 billion yuan.

Regarding the failure to pay maturing debts, the Securities Regulatory Commission stated that as of August 31, 2023, Evergrande Real Estate had a total of 2,983 unsettled maturing debts that were not promptly disclosed in accordance with regulations since January 1, 2021, involving an amount of 278.531 billion yuan.

In response to the above illegal facts, corresponding evidence includes evidence such as Evergrande Real Estate's annual report, bond collection instructions, credit rating reports, issuance results announcements, financial data, information notes, and records of inquiries from relevant parties.

Xu Jiayin and others have bad methods of falsifying instructions

In response to the illegal acts falsely recorded in Evergrande Real Estate's 2019 Annual Report and the illegal acts falsely recorded in Evergrande Real Estate's 2020 Annual Report, the Securities Regulatory Commission found:

Xu Jiayin, then chairman of Evergrande Real Estate, comprehensively managed all businesses of Evergrande Real Estate and instructed other personnel to inflate Evergrande Real Estate's annual report performance. The methods were particularly bad, and the circumstances were particularly serious. He was the directly responsible supervisor. At the same time, he organized and directed the execution of the above illegal acts as the actual controller.

Xia Haijun, then vice chairman of the board of directors and president of China Evergrande Group (hereinafter referred to as Evergrande Group), actually co-ordinated the daily operations of Evergrande Real Estate and organized the preparation of false financial reports. The methods were particularly bad, and the circumstances were particularly serious. He was the directly responsible supervisor.

Pan Darong, the financial director of Evergrande Group at the time, was actually responsible for the financial audit of Evergrande Real Estate and organized and coordinated the financial fraud of annual reports. He acted badly. The circumstances were serious. He was the other person directly responsible.

Pan Hanling, then vice president and general manager of the financial center of Evergrande Real Estate and then vice president of China Evergrande New Energy Vehicle Group Co., Ltd. (hereinafter referred to as Evergrande Automobile), was the former head of the Evergrande Real Estate Management Center and participated in the implementation of work related to financial fraud in 2019. The conduct was bad, and the circumstances were serious. He was another directly responsible person.

Ke Peng, then president of Evergrande Real Estate, was responsible for the daily operation and management of Evergrande Real Estate. He participated in the review and signing of Evergrande Real Estate's 2020 Annual Report. He is the other person directly responsible.

Zhen Litao, the then president of Evergrande Real Estate, was responsible for the daily operation and management of Evergrande Real Estate. He participated in the review and signing of issuance documents such as the 20 Evergrande 02 bonds. He is the other person directly responsible.

Qian Cheng, then vice president of Evergrande Real Estate, participated in the review and signing of Evergrande Real Estate's 2020 Annual Report. He is the other person directly responsible.

The Securities Regulatory Commission pointed out that the suspected fraudulent issuance of corporate bonds by Evergrande Real Estate violates the provisions of Article 19 of the Securities Law that “the securities issuance application documents submitted by the issuer shall fully disclose the information necessary for investors to make value judgments and investment decisions, and the content shall be true, accurate, and complete”, and constitutes an act described in section 181 (1) of the Securities Law.

Xu Jiayin and Xia Haijun are banned for life

Based on the facts, nature, circumstances and degree of social harm of the person concerned, and taking full account of Qian Cheng's active cooperation with the Securities Regulatory Commission in investigating and rectifying the illegal act, the Securities Regulatory Commission decided that the CSRC finally imposed a number of comprehensive penalties in response to Evergrande Real Estate's disclosure of false records in its 2019 and 2020 annual reports.

1. Order Evergrande Real Estate to make corrections, give a warning, and impose a fine of RMB 4.175 billion;

2. A warning was given to Xu Jiayin and a fine of 47 million yuan was imposed;

3. A warning was given to Xia Haijun and a fine of 15 million yuan was imposed;

4. Give a warning to Pan Darong and Pan Hanling, and fine of 9 million yuan each;

5. A warning was given to Ke Peng and a fine of 3 million yuan was imposed;

6. A fine of 2 million yuan was imposed on Zhen Litao;

7. A warning was given to Qian Cheng and a fine of 200,000 yuan was imposed.

The Securities Regulatory Commission said that Xu Jiayin made a decision and organized the execution of financial fraud, and the circumstances were particularly serious; Xia Haijun organized the preparation of false financial reports. The methods were particularly bad and the circumstances were particularly serious. According to the relevant provisions of the “Securities Law” and “Securities Market Prohibition Regulations” (Securities Regulatory Commission Order No. 115) and the proposed decision to ban Xu Jiayin and Xia Haijun from the securities market for life. Pan Darong and Pan Hanling were banned from entering the securities market for 10 years.

Evergrande Real Estate said that the company will continue to monitor the progress of the above matters. Furthermore, with regard to this penalty, the right to make statements, arguments and hearings is waived. The final administrative penalty is based on the formal administrative penalty and market ban decision issued by the China Securities Regulatory Commission. Investors are kindly requested to pay attention to company announcements and investment risks.

Editor/jayden