China Tycoon Zhong Yu changed the history of China Stock Exchange by performing the lead role in 11.5 Billion-Yuan ($1.7)billion worth corporate fraud case. The faith of Kangde Xin Composite Material moved upside down when its founder and controller put its reputation at risk.
Yu intentionally changed the company's financial statements to mislead shareholders who assumed that company was in good standing. However, a plug on this mega stock market fraud was pulled in January 2019 when the company defaulted on two short-term debts worth 1.55 billion yuan.
The shareholders were surprised when this new break into the market. According to their knowledge and understanding, the company had 15 billion yuan in cash and bank deposits. It was the time when they realized that financial accounts depicted a fake representation of profit.
However, two bond default in January 2019 was not the only incident that raised concerns on the financial health of this composite material company. Later that year, the company failed to repay a series of yuan- and dollar-nominated bonds. Shareholders started questioning the company's financial standing and requested officials to do a thorough investigation into this matter.
The recent finding of this investigation has come on the surface. According to reports, the company's founder could pull off this high-profile fraud case of the stock market with the support of his three allies, who previously held executive positions in the company.
The debt-fraud case has been moved to a public prosecutor officer. Zhang Lixiong-former Treasury department head, Xu Shu- Former general manager, Wang Yu-former finance director, will face prosecution alongside Zhong Yu.
Lawyers who are following this case are sharing their viewpoints about punishments on this case. According to them, one of the severe offenses under Law is the fraudulent purchase of Stock exchange, and unfortunately, Zhong Yu has accused it. They said that punishment for this serious offense ranges from 10 years jail-time to lifetime imprisonment.
Kangde Xin is still struggling as this high-profile fraud case got exposed at the global level. Its controller is accused of Breach of Trust and damaging the interest of the company. The founder is accountable for misleading shareholding by sharing false information and not disclosing the valid information. According to Law, Yu was held responsible for concealing the most important fact from shareholders.
Police detained Zhong, who resigned from the company's chairmanship, but he still holds the controller position.
A CSRC investigation report clarified that Zhong and his allies had been overstating the company's profit for the last four years. They recorded fake export sales in financial statements.
And non-payment of the two-short term was the red signal for shareholders and officials to kickstart a discovery of a series of other fraudulent activities.