Financial fraud: Four A-share companies collectively penalized! One stock will be delisted next week, causing over 40,000 investors to suffer losses.

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Reporter丨Cui Wenjing Liu Xueying

Editor丨Bao Fangming Jiang Peixia

Video丨Zhang Qiliang

After six companies were consecutively investigated and penalized on the evening of March 20, within just a week, the capital markets once again welcomed a regulatory “heavy blow.”

On the evening of March 27, four more listed companies disclosed penalty notices. Of the three that were fined, they had already been labeled “ST.” They are ST Derun (rights protection), ST Bailin (rights protection), and ST Mingcheng (rights protection), while Sierte (rights protection) will also “wear a hat” starting next week (March 31). Wind data shows that, as of the end of the first quarter of 2026, the number of Sierte shareholders reached 41,000.

Compared with the cases from a week earlier, the penalties for these four companies show new characteristics.

ST Bailin falsified financial statements for four consecutive years due to problems with the accounting of sales expenses. Its cross-period adjustment technique of “under-accruing expenses first and then over-accruing expenses” is relatively rare in the A-share market. In its argument, the company claimed it was “correcting errors through remediation,” but the regulators clearly rejected this;

Sierte and ST Derun reflect an accountability direction of “severe penalties for individuals.” The total amounts of fines imposed on individuals are far higher than those on the company entities. For ST Derun, the controlling shareholder, Qiu Jianmin alone, was fined RMB 12 million. For Sierte, its chairman and general manager were each proposed to be fined RMB 3 million. The intensity of personal accountability was significantly increased.

In terms of the types of problems, financial statement fraud remains the “common disease” among the four companies, and the methods are diverse. ST Derun fabricated repayment receipts worth RMB 534 million through “capital infusions” from the actual controller. Sierte adjusted profits through a dual operation involving fictitious project construction and false procurement and sales. ST Bailin used cross-period expense adjustments to achieve “turning losses into profits.” ST Mingcheng involved falsification across multiple links, including revenue recognition, inventory impairment, and goodwill impairment; the total profits overstated across the board exceeded RMB 400 million.

Behind this flurry of dense penalty notices, clear regulatory signals have emerged: financial statement fraud will be strictly investigated across the board; even proactive corrections after the fact do not escape accountability; after funds are returned following unlawful occupation, penalties still apply.

Combining the China Securities Regulatory Commission’s March 27 publication of the report on China’s 2025 rule-of-law government construction—701 cases investigated throughout the year, and RMB 15.474 billion in fines and confiscations—and the statement by CSRC Chairman Wu Qing during the Two Sessions that he would “resolutely break up the ecosystem of financial statement fraud,” an increasingly standardized, transparent, and predictable capital market rule-of-law environment is accelerating in formation.

ST Bailin chairman fined 10 years from the market

Net worth once exceeded RMB 20 billion

Among the four penalty notices, the case of ST Bailin has drawn especially close attention. This listed company, whose main business is the production and sales of Chinese patent medicines, has financial statement fraud methods that are entirely different from traditional fictitious revenue and inflated profits. Instead, it violates the accrual accounting principle by performing cross-period adjustments to sales expenses, resulting in four consecutive years of annual report distortion.

According to the “Decision on Administrative Penalty” issued by the Guizhou CSRC, during the period from 2019 to 2023, ST Bailin failed to comply with the provisions of Article 9 of the “Accounting Standards for Business Enterprises—Basic Standards,” and did not use accrual accounting as the basis for accounting. It also failed to accrue sales expenses based on the principle of matching revenue, costs, and expenses.

More specifically, in 2019 it understated sales expenses by RMB 350 million, and overstated profits by RMB 350 million, accounting for 95.73% of total profit for the period; in 2020 it understated sales expenses by RMB 241 million and overstated profits by RMB 241 million, accounting for 115.35% of total profit for the period; in 2021 it understated sales expenses by RMB 63.7916 million and overstated profits by RMB 63.7916 million, accounting for 45.04% of total profit for the period. In 2023, ST Bailin did the opposite again: it overstated sales expenses by RMB 459 million, understated profits by RMB 459 million, accounting for 93.17% of total profit for the period.

This “under-accrue expenses first, then over-accrue expenses later” operation was characterized by the regulators as a “balance-sheet adjustment” behavior. In its defense, ST Bailin claimed that the delay in accruing sales expenses was due to industry-wide commonality and objective constraints, and that its over-accrual of sales expenses in the 2023 annual report was an initiative to correct errors through remediation. But the regulators explicitly rejected this explanation, stating that “under-accruing sales expenses first, and then taking measures to over-accrue sales expenses to balance out the earlier under-accrued sales expenses, does not constitute ‘remediation’,” and that the company had subjective fault, causing a severely negative impact on the market.

The special aspect of this case lies in the fact that it reveals a more covert method of financial statement fraud—using the time difference in expense recognition to adjust profits. Compared with traditional methods such as fabricating transactions or forging contracts, cross-period expense adjustments are harder to detect, but the damage to the authenticity of financial information is no less than that caused by revenue fraud. ST Bailin committed financial fraud for four consecutive years, with the fraud proportion often exceeding 90%, reflecting severe deficiencies in its internal controls.

The “Decision on Administrative Penalty” shows that the then chairman of Guizhou Bailin, Jiang Wei, allowed illegal and non-compliant financial statement fraud to occur, leading to false records in the company’s annual reports for many years. The Guizhou CSRC gave him a warning, imposed a fine of RMB 5 million, and imposed a 10-year ban from the securities market.

Jiang Wei’s net worth at one point exceeded RMB 20 billion. In 2015, he was listed among the top 100 on the Hurun Rich List. However, in 2021 his net worth fell sharply to RMB 3 billion; the following year he even dropped off the rich list.

Meanwhile, from the perspective of the intensity of personal penalties, these four companies show new characteristics of “heavy fines for individuals” or “equal weight on individuals and companies.”

Taking ST Derun as an example: the company was fined RMB 7 million, while total personal fines amounted to as much as RMB 15.5 million. Among them, the controlling shareholder and former chairman Qiu Jianmin alone was fined RMB 12 million, and he was also subjected to a 5-year ban from the securities market. Sierte has not yet issued a formal decision on penalty, but based on the prior notice, the company was proposed to be fined RMB 6 million, while seven individuals in total were proposed to be fined RMB 13.6 million. Among them, the chairman and general manager were each proposed to be fined RMB 3 million, and each reached half of the company’s proposed fine. The total personal fines for ST Bailin were RMB 8.5 million, also close to the company’s fine of RMB 10 million.

Under this “dual-penalty” system, the high personal fines mean that the regulator’s accountability for the “key few” is being significantly intensified. When listed companies commit illegal acts and violations, executives—especially core personnel such as the controlling shareholder, chairman, and general manager—are becoming重点 targets of regulatory law enforcement.

Diversification of methods of financial statement fraud

Among the penalty information for the four companies, financial statement fraud is the most concentrated issue, and the methods differ, showing diversification.

ST Derun’s fraud methods are quite “creative.” Because its main customers faced operational difficulties and genuine repayments were blocked, the company’s actual controller, Qiu Jianmin, used his own funds and external borrowings, among other means, to provide funding support to the company’s customers, its former and related subsidiaries, and equipment suppliers. This funding was used by these entities to repay the company historical outstanding debts. Qiu Jianmin did not report to the company the actual source of the funds, leading the company in 2020, 2021, and the first half of 2022 to fabricate repayments of RMB 395 million, RMB 113 million, and RMB 26.8369 million, respectively, for a cumulative fabricated repayment of over RMB 534 million. This operation not only inflated repayment amounts, but also resulted in the company under-accruing credit impairment losses, thereby inflating profits.

It is worth noting that this method of manufacturing repayment illusions through “capital infusions” by the actual controller is fairly typical in A-share fraud cases. Its concealment lies in the fact that the money indeed entered the company’s bank accounts—only the source was deliberately concealed.

Sierte’s financial statement fraud involves two fictitious business lines. First, it fabricated false skip vehicle tunneling contracts and settlement sheets by using its wholly owned subsidiary Guizhou Lufa. It then signed false project construction contracts with multiple companies, leading to an overstatement of total profit by RMB 45.804 million in 2021 and an underreporting of total profit by RMB 17.3485 million in 2023. Second, it inflated operating costs and operating revenue through fictitious urea procurement and organic fertilizer sales, resulting in an underreporting of total profit by RMB 9.4573 million in 2021. Taken together, Sierte overstated total profit by RMB 36.3467 million in 2021 and underreported total profit by RMB 17.3485 million in 2023. This operation that both overstates and underreports reflects that the company may be smoothing performance by adjusting profits across different years.

ST Mingcheng’s problems are more complex, involving three major categories: undisclosed related guarantees, false records, failure to disclose arbitration information in a timely manner, and related-party transactions. In terms of financial statement fraud, ST Mingcheng did not confirm equity repurchase debt of RMB 20.21 million in 2020; in 2021 it overstated revenue by RMB 98.42 million by inaccurately recognizing revenue from Spanish-language copyright income. At the same time, it under-accrued impairment on inventories and goodwill, respectively by RMB 98 million and RMB 213 million, for a cumulative overstatement of total profits as high as RMB 409 million.

In addition to financial statement fraud, unlawful guarantees and fund occupation are also prominent issues. In its 2020 annual report, ST Mingcheng failed to disclose related guarantees with huge amounts, including providing guarantees of about RMB 660 million for loans to related parties for Contemporary Investment; providing guarantees of RMB 750 million for loans to Yushimining; providing guarantees of USD 150 million for AN payment obligations by Xinying Cayman to AFC; and providing guarantees of RMB 7 million for loans to the Contemporary Football Club. In 2022, ST Mingcheng also delayed disclosure of total arbitration information amounting to RMB 334 million, as well as one related-party transaction worth RMB 20.97 million.

From the common issues across the four companies, the methods of financial statement fraud are continually being refreshed—from traditional fictitious revenue and inflated profits, to cross-period expense adjustments and fabricating repayments via “capital infusions” from the actual controller, and then to adjustments across multiple links such as revenue recognition, impairment provision, and liability confirmation. The concealment and complexity of the fraud are increasing. Meanwhile, unlawful guarantees and fund occupation issues have persisted, becoming “undercurrents” that siphon value from listed companies.

Crack down hard on financial statement fraud; delisting does not mean exemption from liability

Based on the penalty situations of the four companies, together with the latest disclosed regulatory data from the CSRC and policy signals from the Two Sessions, current capital market regulation shows three major new characteristics.

First, financial statement fraud will be strictly investigated across the board, and post-fact correction cannot免除 punishment.

In ST Bailin’s case, the company claimed that in 2023 it offset the under-accrued expenses from earlier periods by making over-accruals of sales expenses, and that this was a case of “proactive remediation and error correction.” But the regulators clearly determined that this does not constitute remediation; it is financial statement fraud itself. This is consistent with the case of ST Dongshi (rights protection) from a week earlier: even if the company proactively issued an correction announcement, it could not change the regulators’ factual determination of violations in information disclosure. The regulators’ determination of financial statement fraud is no longer limited to whether information was concealed, but instead focuses on whether it occurred. Remedial actions after the fact cannot become grounds for exemption.

Second, the accountability intensity for the “key few” is significantly increased.

From the fact that Qiu Jianmin, the actual controller of ST Derun, was fined RMB 12 million; Jiang Wei, the chairman of ST Bailin, was fined RMB 5 million and banned from the market for 10 years; and the chairman and general manager of Sierte were each proposed to be fined RMB 3 million, it can be seen that the fines for individual responsible persons are being set on par with company-level penalties, even exceeding them. Such high enforcement under the “dual-penalty” system means that executives—especially key personnel—must bear real economic costs for the company’s illegal and non-compliant conduct, not just symbolic warnings. This aligns with the CSRC’s 2025 regulatory ledger of RMB 15.474 billion in fines and confiscations, showing that a “teeth-baring and thorny” regulatory tone with angles and edges is being continuously deepened.

Third, any unlawful occupied funds must be returned, and penalties will still be imposed even after returning the funds.

Although ST Derun’s actual controller Qiu Jianmin “infused” the company with funds using his own capital and external borrowings to help the company with repayments, these funds in nature are a variant of funds occupied from related parties. Qiu Jianmin was ultimately fined RMB 12 million and banned from the market for five years. This case clearly shows that the regulator’s stance toward fund occupation has moved beyond “just recover the money.” It has been upgraded to “violation leads to penalty, and return also leads to penalty,” aiming to fundamentally curb the temptation of major shareholders to encroach on the interests of listed companies.

From a more macro perspective, the CSRC’s report on 2025 rule-of-law government construction shows that throughout the year, 701 cases were handled for investigation, and fines and confiscations reached RMB 15.474 billion, with 172 leads of suspected criminal cases transferred to public security authorities. These figures directly reflect that strict regulation is becoming normalized. Meanwhile, remarks by CSRC Chairman Wu Qing during the Two Sessions clarified the next regulatory direction: further increase efforts to investigate and crack down on financial statement fraud by listed companies; strengthen an integrated campaign against fraud by requiring third parties to cooperate; strictly implement mandatory delisting requirements for companies committing fraud; firmly eliminate “bad apples”; and resolutely break up the “ecosystem of financial statement fraud.”

It can be expected that, with the formulation and implementation of the “Regulations on the Supervision of Listed Companies,” and the推进 of building a center for discovering lines of inquiry into financial statement fraud and constructing monitoring and early warning mechanisms for fraud committed with third-party assistance, future crackdowns on illegal and non-compliant conduct such as financial statement fraud will become more precise and more in-depth. For market participants, a more standardized, transparent, and predictable A-share ecosystem is accelerating formation. As for those entities that are still trying to harm listed company interests through financial statement fraud and unlawful fund occupation, the four penalty notices issued on the evening of March 27 are undoubtedly a loud warning bell.

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