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SCMP Reporter

A court in Sichuan province has slapped a one-million-yuan (about HK$937,000) fine on A-share-listed television-parts maker Chengdu Hongguang Industrial, as part of the first criminal case lodged against a mainland company for falsifying reports to obtain a stock-market listing.

The fine was handed down by the Chengdu Intermediate Court on Thursday, bringing to a close a case brought by local prosecutors in January against the Shanghai-listed firm.

The prosecution was made more complicated by the fact the Chengdu municipal government is a 35 per cent shareholder in Hongguang.

In April 1999, the government went so far as to waive 95.1 million yuan in debts and back taxes to help the firm.

What remains unclear from this week's ruling is how it will affect separate civil cases against the company by individual shareholders who claim they were defrauded by purchasing the company's listed shares.

So far no court has accepted a case from a shareholder claiming losses.

A suit brought by a local Shanghai investor in 1998 against the company and its chairman was thrown out by Shanghai Pudong District Court in May 1999.

Nor have courts determined whether government officials responsible for approving Hongguang's stock offering should bear any responsibility.

Hongguang Industrial listed in June 1997 by falsifying company reports and claiming non-existent profits. A subsequent China Securities Regulatory Commission (CSRC) investigation found that the firm had said its 1996 net profits were 54 million yuan, instead of reporting actual losses of 103 million yuan.

After the listing, Hongguang continued to falsify information, reporting profits of 16.74 million yuan for the first half of 1997, instead of actual losses of 65 million yuan.

Huge downward revisions in the company's profits and asset values were required once the fraud was exposed. Four company officials who participated in creating the bogus information and later profited from Hongguang's share listing are now serving jail sentences of three years for their activities.

They are the company's former chairman He Xingyi, former general manager Yan Zhuancui, his deputy Liu Zhengqi and former accounting chief Chen Shaobing.

In 1998, the CSRC fined the company one million yuan and banned He, Yan and Chen from the securities industry for life.

It was the first time the securities watchdog had taken action against a firm for falsifying profit reports to obtain a share listing.

Mainland newspapers reported yesterday the Chengdu court gave Hongguang 30 days to pay the fine.

A company spokesman contacted in Chengdu said no appeals were planned.

He also said the legal case represented an important turning point in the company's history and should serve as a warning to other market-listed companies to behave lawfully.



Television-parts maker Chengdu Hongguang fined over false company reports