Xilinmen Shockingly Reveals "Insider Case": 100 Million Yuan Funds Embezzled, 900 Million Yuan Accounts Urgently Frozen

Log in to the Sina Finance app to search for 【information disclosure】 and view more assessment grades

        By a reporter with The Daily Economic News｜Zhao Linan    Edited by｜Yang Jun              

On March 27, well-known sleep technology company Joyoung Home Furnishings (SH603008, share price 16.30 yuan, market cap 6.003 billion yuan) announced that its controlling subsidiary had been targeted by alleged misuse of funds by an internal staff member using their position, resulting in as much as 100 million yuan in bank account funds being illegally transferred.

The reporter with The Daily Economic News noted that, in order to prevent risk spillover, Joyoung Home Furnishings urgently placed multiple bank accounts involved—amounting to around 900 million yuan—under protective self-freezing.

The total amount of the funds involved in this case, together with the frozen funds, has cumulatively exceeded 1 billion yuan, accounting for 26.54% of the company’s net assets in the most recent audited period, and the proportion relative to cash and cash equivalents is as high as 42.69%.

After the incident occurred, the Shanghai Stock Exchange quickly issued a regulatory work letter. The parties involved include the company’s directors, senior management, and the actual controller.

A regulatory work letter issued by the SSE

On March 27, with a single announcement, Joyoung Home Furnishings pushed itself onto the forefront of public attention. Joyoung Home Furnishings said that recently, the company discovered that bank account funds of its controlling subsidiary, Xitu Technology Co., Ltd. (hereinafter referred to as “Xitu Technology”), had been subject to an illegal transfer.

This is not an ordinary external fraud, but a typical “insider theft” case. After verification, Joyoung Home Furnishings found that the relevant personnel allegedly misappropriated large sums of company funds illegally by taking advantage of their positions. The data show that the funds illegally transferred in this case totaled as much as 100 million yuan, and the specific accounts are the general accounts opened by Xitu Technology at the Hangzhou Branch of the Industrial and Commercial Bank of China.

To further prevent risks to fund security and ensure the safety of funds of the listed company, Joyoung Home Furnishings on March 26 officially applied to public security authorities for a case filing and investigation. At the same time, Joyoung Home Furnishings froze the potentially involved bank accounts in a protective manner.

According to the disclosure, as of the date of the announcement, Joyoung Home Furnishings’ controlling subsidiary has a total of three bank accounts in a frozen status, with a combined amount of more than 900 million yuan in the frozen accounts. This large amount of frozen funds is held respectively in: the general account of Hangzhou Xiyue Furniture Sales Co., Ltd. at the CITIC Bank Hangzhou Dongxin Sub-branch; the general account of Hangzhou Xiyue Furniture Sales Co., Ltd. at the CITIC Bank Hangzhou Xihu Sub-branch; and the general account of Shaoxing Xinxi Furniture Sales Co., Ltd. at the CITIC Bank Hangzhou Qiantang Sub-branch.

Taken together, the 100 million yuan that was illegally transferred in this case and the approximately 900 million yuan that was protected by judicial freezing together exceed 1 billion yuan, accounting for 26.54% of the company’s net assets in the most recent audited period, and accounting for 42.69% of the company’s monetary funds in the most recent audited period.

Such a major internal control crisis and abnormal funds immediately drew heightened vigilance from regulators. On March 27, the Shanghai Stock Exchange promptly issued a regulatory work letter regarding matters related to the transfer and freezing of account funds of Joyoung Home Furnishings. The objects covered by the regulatory letter include not only the listed company itself, but also explicitly covers the company’s directors, senior management personnel, as well as the controlling shareholder and the actual controller.

In response to the above situation, Joyoung Home Furnishings emphasized in its announcement that the freezing of the above 900 million yuan in bank accounts is a protective freeze initiated proactively by the company to protect fund security, and there is no situation in which the accounts were frozen by a third party. The company stated that the matter may have some adverse impact on the normal use of funds and operations of the controlling subsidiary in the short term, but after comprehensive consideration of cash flow, it will not temporarily pose a material adverse impact on the company’s overall production and business activities.

“Currently, the company is fully cooperating with public security authorities to investigate and verify the relevant matters. Under the premise of ensuring the safety of funds in the accounts, we will advance the process to unfreeze the frozen accounts, and fully advance the work to recover the illegally transferred funds, striving to eliminate the related adverse impacts as soon as possible and effectively safeguard the lawful rights and interests of the company and all its shareholders.” Joyoung Home Furnishings said.

The involved company carries an important mission

The company involved in this incident is Joyoung Home Furnishings’ controlling subsidiary—Xitu Technology. This company was an important piece that Joyoung Home Furnishings had high hopes for and intended to use to expand into a new business territory.

Tracing back to more than five years ago, in December 2020, at the 12th meeting of the fourth session of the board of directors, Joyoung Home Furnishings considered and approved the motion on “Investing Externally to Establish a Wholly Owned Subsidiary” with a full vote of 9 in favor, 0 against, and 0 abstentions.

According to the announcement at the time, in order to further enhance the company’s brand influence and expand the company’s product sales channels, based on its own strategic plans and needs for business development, it planned to invest 50 million yuan in cash to establish a wholly owned subsidiary, Xitu Technology.

According to publicly available information from Tianyancha, Xitu Technology was subsequently formally established in January 2021, with a registered capital of 50 million yuan. The company’s legal representative is Zhou Yaying, and the address is Room 2801–2806, Building 2, Shanshui Times Building, No. 26 Yulong Road, Yingfeng Street, Xiaoshan District, Hangzhou, Zhejiang.

At the time of its establishment, Joyoung Home Furnishings clearly granted Xitu Technology a highly important strategic mission—to be responsible for the development and expansion of hotel channel business. At that time, Joyoung Home Furnishings believed that this external investment aligned with the company’s strategic planning and needs for business development. On the one hand, by exploring new business models, it would be conducive to further expanding hotel channels, nurturing new profit growth drivers, and achieving the company’s sustainable development; on the other hand, by enabling brand exposure through hotel channels, it would create new mattress experience scenarios, effectively enhancing the company’s brand awareness and reputation, thereby improving the company’s overall competitiveness.

What is truly regrettable is that this subsidiary, originally intended to enhance the company’s overall competitiveness and tasked with the heavy responsibility of expanding the hotel sales channel, has now—possibly due to serious internal management loopholes—become the source that causes the listed company to “bleed” heavily.

Regarding this sudden black swan incident, Joyoung Home Furnishings stated that as of now, the matters concerning the recovery of the illegally transferred funds still involve a certain degree of uncertainty; if the funds cannot be recovered, it may have an adverse impact on the company’s net profit. The company will continue to monitor the progress of the above matters and promptly fulfill its information disclosure obligations. Investors are kindly reminded to pay attention to investment risks.

Cover image source: Zhu Yu

A massive amount of information and precise analysis—right here in the Sina Finance app