ST Bailin Financial Fraud Case, Penalties Implemented

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After issuing the 《Administrative Punishment Pre-Notice Letter》 on December 19, 2025 and holding a hearing this February, on March 27, the Guizhou CSRC issued the 《Administrative Punishment Decision》 to ST Bailin (rights protection) and the relevant parties.

Based on the violations already ascertained, the regulator decided to issue warnings to ST Bailin and 9 in-service “executive” personnel, and impose a total fine of RMB 24.9 million. Among them, both the company and its chairman, Jiang Wei, received the maximum penalty: the company was fined RMB 10 million and Jiang Wei was fined RMB 5 million. At the same time, a 10-year ban from the securities market was imposed on Jiang Wei. If the parties disagree with the above punishment decision, they may apply for administrative reconsideration or file an administrative lawsuit within the prescribed time.

The securities regulatory system has intensified its crackdown on comprehensive “tiger strikes” against financial fraud. The regulator believes that financial fraud is a “cancer” that seriously undermines the market’s principles of “openness, fairness, and impartiality” and erodes the foundation of market integrity. It is one of the illegal acts and violations that investors hate the most and cannot tolerate. The regulator will investigate and deal with ST Bailin’s illegal disclosures related to financial fraud, which aligns with expectations from all sides.

In fact, regarding the financial fraud case involving Guizhou Bailin, the China Securities Journal published two in-depth investigative reports on November 1, 2024 and October 11, 2024: 《Last year’s fourth-quarter selling expense ratio was abnormally high; doubts over the authenticity of Guizhou Bailin’s financial statements》 and 《Guizhou Bailin’s annual report had major accounting errors last year; potential undercounted losses of RMB 92 million》.

For many years, financial data was falsified

A 10-year ban from the securities market was imposed on Jiang Wei

The regulator determined that ST Bailin’s illegal facts are clear. When accounting for its finances, the company failed to comply with Article 9 of the 《Accounting Standards for Business Enterprises—Basic Standard》, namely, it did not use the accrual basis as the accounting basis, and did not provision selling expenses according to the revenue-cost-expense matching principle. Specifically:

In 2019, selling expenses were undercounted by RMB 350.1249 million, resulting in profits being overcounted by RMB 350.1249 million, accounting for 95.73% of the total profit stated in the period report (absolute value);

In 2020, selling expenses were undercounted by RMB 240.8095 million, resulting in profits being overcounted by RMB 240.8095 million, accounting for 115.35% of the total profit stated in the period report (absolute value);

In 2021, selling expenses were undercounted by RMB 63.7916 million, resulting in profits being overcounted by RMB 63.7916 million, accounting for 45.04% of the total profit stated in the period report (absolute value);

In 2023, selling expenses were overcounted by RMB 459.4110 million, resulting in profits being undercounted by RMB 459.4110 million, accounting for 93.17% of the total profit stated in the period report (absolute value).

The Guizhou CSRC believes that the above financial fraud conduct led to the annual reports of ST Bailin for 2019, 2020, 2021, and 2023 containing false records of information disclosure. The above illegal facts are supported by evidence such as company announcements, financial materials, business contracts, sales documents, meeting resolutions and records, statements of the situation, and transcripts of inquiries of relevant personnel, which is sufficient to conclude.

Worth noting is that in the article 《Last year’s fourth-quarter selling expense ratio was abnormally high; doubts over the authenticity of Guizhou Bailin’s financial statements》， a reporter from the China Securities Journal found that, although the selling expense ratio remained around 36% during the first three quarters of 2023, Guizhou Bailin’s selling expense ratio in the fourth quarter was as high as 81.73%, showing clear abnormality. Although the company claimed that the main reason was that the company adjusted its sales model during the reporting period, the reporter found that the relevant adjustments had already been made in the first half of 2023, and that the selling expense ratio for the first three quarters of both 2023 and 2024 showed no significant change.

Based on the facts, nature, circumstances, and degree of social harm of ST Bailin’s illegal conduct, the Guizhou CSRC, pursuant to relevant provisions of the Securities Law, decided to order ST Bailin to make corrections, issue a warning, and impose a fine of RMB 10 million.

The regulator held that Jiang Wei, then chairman of ST Bailin, was comprehensively responsible for the company’s management, knew that there were problems with how the company calculated selling expenses, allowed the company’s illegal and noncompliant financial fraud conduct to occur, and signed the above four annual reports while ensuring that they were true, accurate, and complete. He failed to diligently perform his duties, making him the person in charge directly responsible for ST Bailin’s information disclosure violations. Based on this, the Guizhou CSRC decided to issue a warning to Jiang Wei and impose a fine of RMB 5 million, and also impose a 10-year ban from the securities market on him. The market ban takes effect from the date the Guizhou CSRC announces the above decision.

Holding a hearing

Reviewing the parties’ comments one by one

The reporter learned that in early February, upon the request of the parties, the Guizhou CSRC was required to hold a public hearing. It actively invited relevant units and the media to attend the hearing. The regulator fully listened to the parties’ opinions, ensured the parties’ right to state and defend their positions, and found that the procedures were lawful. It also reviewed, one by one, the main comments raised by the parties and their agents at the hearing.

For example, ST Bailin believed that the delay in accruing selling expenses was caused by industry commonality and objective limitations, not by the company’s intentional illegal and noncompliant conduct. After reviewing, the Guizhou CSRC’s response was: ST Bailin’s problems in internal financial management for sales led to issues in the calculation of selling expenses, resulting in false records in the annual report, which has nothing to do with industry characteristics.

Another example: ST Bailin believed that the regulator’s characterization of the company’s financial fraud was incorrect. The company had no motive to prepare false reports. Because it could not accurately confirm the attribution period of the relevant expenses, its provision of selling expenses that were in excess in the 2023 annual report and the related handling complied with relevant regulations. This constituted proactive remediation and correction of errors, with a small subjective fault, and had a limited impact on the order of the capital market; therefore, it should not be subject to administrative penalties. The Guizhou CSRC stated that ST Bailin first under-accrued selling expenses and then, by over-accruing selling expenses to offset the earlier under-accrual, such action did not constitute remediation. The company’s characterization regarding financial fraud was accurate: the company had subjective fault, caused a bad impact on the market, and therefore, pursuant to law, it should be subject to administrative penalties.

ST Bailin also raised opinions such as that the administrative penalty statute of limitations had passed and that the administrative penalty procedures were unlawful. The Guizhou CSRC held that the end date of ST Bailin’s information disclosure violations was less than two years from the date the Guizhou CSRC discovered it, so it had not exceeded the administrative penalty statute of limitations. Meanwhile, according to law, the regulator investigated and handled ST Bailin’s information disclosure violations for which the facts were clear and the evidence was sufficient. The regulator fulfilled the prior notice procedure for administrative penalties, held the hearing, and listened to the company and its agents’ statements and defense opinions. The administrative penalty procedures were lawful.

Strengthening the responsibility of the audit committee

All parties must diligently perform their duties to prevent financial fraud

Financial fraud is one of the illegal acts and violations that investors care about the most, hate the most, and cannot tolerate. “Only by having all parties jointly hold the law in high regard and adhere to compliance can we drive the capital market back to its original purpose of ‘openness, fairness, and impartiality,’ and provide long-term support for the healthy, stable development of the capital market.” a team led by Huang Jiangdong, a partner at Grandall Law Firm, said.

Especially in recent years, as the audit committee has “taken over” from the supervisory board, it has fully taken on core responsibilities such as reviewing financial information, supervising internal and external audits, and assessing internal controls. As a result, corporate governance structures of listed companies have been further optimized, oversight systems have become more efficient, and oversight checkpoints have shifted forward. All parties hope that the audit committee can carry out the connection of its functions with high professionalism and a sense of responsibility, and through diligent performance in fulfilling its duties, continuously enhance supervisory effectiveness and provide strong support for the high-quality development of listed companies.

Cracking down on and preventing financial fraud in the capital market is urgent. On January 5, the CSRC held a cross-departmental symposium on advancing the comprehensive systems for punishment and prevention of financial fraud in the capital market. The meeting believed that the construction of the comprehensive systems for punishment and prevention of financial fraud in the capital market has entered a key stage of deep implementation, and it must adhere to a problem-oriented approach and a systems thinking approach to打好 the “combination punch” of comprehensive punishment and prevention.

This includes not only closely monitoring the failure of duty among the “key few,” but also strictly preventing the “gatekeepers” from failing. Market participants said that, judging from the accountability of intermediaries in financial fraud cases of listed companies investigated by securities regulators in recent years, the intermediary institutions involved in the case of ST Bailin may find it hard to escape punishment.

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责任编辑：杨红卜