Chinese Telecommunications company Yuandao Communication has been fined approximately 239 million yuan by the Chinese Communist Party’s Securities Regulatory Commission for falsely inflating revenue for four consecutive years before and after its listing. The company’s stock has been suspended, with the Shenzhen Stock Exchange planning to delist it, and three current executives have been fined a total of 16.5 million yuan.
The penalty decision released on September 4th revealed that from 2019 to 2021, Yuandao Communication inflated its operating income through methods such as forging job confirmation documents and included the related data in its prospectus. Over these three years, the falsely inflated revenue amounted to around 65.9 million yuan, 161 million yuan, and 264 million yuan, accounting for 8.75%, 13.12%, and 16.23% of the operating income listed in the prospectus for those years.
Yuandao Communication went public on the Shenzhen ChiNext board in July 2022, raising approximately 1.169 billion yuan. After listing, the company continued to artificially inflate its revenue, with about 166 million yuan falsely added in 2022, representing 7.87% of that year’s operating income. The total false inflation over the four years amounted to approximately 656 million yuan.
Investigations revealed that the company, before confirming the progress of related work toward earning income, replaced customers’ job confirmation documents with other documents or even directly fabricated confirmation documents to prematurely record income. It was also found that business and financial personnel arbitrarily adjusted financial data.
Yuandao Communication was fined 2.338 billion yuan for “fraudulent issuance” and an additional 5 million yuan for falsifying annual reports, totaling around 2.388 billion yuan.
The then Chairman Li Jin was fined 7.5 million yuan and banned from the securities market for five years. The then Vice President and CFO Cao Yalei was fined 6 million yuan and banned for four years, while Director and Vice President Wu Zhifeng was fined 3 million yuan.
The Shenzhen Stock Exchange has issued a preliminary delisting notice to Yuandao Communication, with the company’s stock being suspended since August 31st. If the decision to delist is ultimately made, the stock will be delisted after a 15-day delisting period.
In the first half of this year, Yuandao Communication’s operating income was 492 million yuan, a 15.83% decrease compared to the same period last year. The net loss was 54.99 million yuan, contrasted with a profit of 15.98 million yuan in the same period last year.