Recently, the Shenzhen Securities Regulatory Bureau announced the penalty results for “377 boxes of accounting data found in a 5-meter deep pit in Shenzhen,” and *ST Changfang and related responsible persons will be heavily penalized.
According to the announcement made by the Shenzhen Securities Regulatory Bureau on the evening of January 10, *ST Changfang Holdings’ subsidiary, Changfang Group Kang Mingsheng (Shenzhen) Technology Co., Ltd. (referred to as Kang Mingsheng), and several responsible individuals were given warnings and fined varying amounts.
*ST Changfang, which stands for Shenzhen Changfang Group Co., Ltd., primarily engages in the research, design, production, and sales of LED lighting source devices and LED lighting products.
The announcement showed that in April 2015, *ST Changfang purchased 60% equity of Kang Mingsheng held by Li Dicong and others through cash payment and issuance of shares, thereby including Kang Mingsheng in *ST Changfang’s consolidated financial statements.
On January 11, Daily Economic News reported that on December 8, 2017, *ST Changfang signed a “Share Transfer Agreement” with Li Dicong, Nie Wei, Peng Lixin, Xiao Yefang, and 29 other natural person shareholders, purchasing 35.7454% equity of Kang Mingsheng in cash. Li Dicong and others promised that the net profit of Kang Mingsheng from 2018 to 2020 would not be less than 125 million yuan, 140 million yuan, and 155 million yuan, respectively.
During this period, the control of Kang Mingsheng remained in the hands of Li Dicong and the original management team. In 2020, due to the impact of the COVID-19 pandemic, Kang Mingsheng failed to meet its performance commitments, leading to disputes between *ST Changfang and Kang Mingsheng regarding performance compensation amounts.
Subsequently, *ST Changfang engaged in negotiations with Li Dicong, the founder of Kang Mingsheng, and the original management team to strengthen control over Kang Mingsheng and other matters.
In its 2021 annual report, *ST Changfang disclosed significant matters, including a 168 million yuan rebate. In June 2022, *ST Changfang held a board meeting to dismiss Li Dicong from his position as executive director of Kang Mingsheng.
Li Dicong publicly opposed the dismissal decision. The conflict escalated further due to disputes over Kang Mingsheng’s financial certificate data and other events.
According to reports from mainland Chinese media, in February 2023, it was revealed that 377 boxes of accounting original documents and operational data buried on a slope in Kang Mingsheng’s subsidiary factory in Jiangxi owned by *ST Changfang were discovered. The pit where the data was buried was approximately 9 meters long, 5 meters wide, and 5 meters deep.
Following the incident, both Kang Mingsheng and *ST Changfang were investigated by the Shenzhen Securities Regulatory Commission.
In its announcement on January 10 this year, the Shenzhen Securities Regulatory Bureau stated that at the time, senior executives of Kang Mingsheng, including executive director Li Dicong, CFO Peng Lixin, and deputy GM Liao Congqi, were found to have destroyed and concealed document data requested for inspection, failed to provide financial system-related data as required, and provided false rebate-related materials.
Therefore, it was decided to order the three individuals to make corrections and impose fines of 1 million yuan each.
The announcement also indicated that Kang Mingsheng artificially increased profits and accounts receivable through methods like not recording rebates properly. *ST Changfang was warned and fined 4 million yuan, and several responsible persons were warned and fined between 1 million and 5 million yuan each.
At the same time, it is proposed to impose a 5-year ban on Li Dicong from the securities market.
A netizen from Liaoning commented: “This incident exposes internal control loopholes. If auditing is rigorous and financial transparency is ensured, with shared financial management, making the accounts clear, who would dare to engage in such practices?”