Hong Kong-listed GF Securities latest broker to be investigated for inadequate due diligence amid roll-out of China’s market-oriented IPO reforms

Firm failed to exercise due diligence in the non-public issuance of shares by Misho Ecology & Landscape in 2018 and is suspected to be in ‘breach of laws’, it says in filing
Northeast Securities, Dongxing Securities, Donghai Securities and Citic Securities have all received warnings and fines for inadequate reviews so far this year

Banking & finance

Pearl Liu

Published: 5:00pm, 18 Apr 2023

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China’s top financial regulator is investigating Hong Kong-listed brokerage GF Securities for the inadequate review of a shares issuance, amid the country’s full embrace of a market-oriented initial public offering (IPO) system.

The China Securities Regulatory Commission (CSRC) has filed a case against GF Securities for suspected unlawful acts, the mainland Chinese brokerage said in a stock exchange filing on Monday.

It “failed to exercise due diligence in respect of sponsorship of the non-public issuance of shares by Misho Ecology & Landscape Co” in 2018 and is, therefore, suspected to be in “breach of laws”, the brokerage said in a Chinese language statement late on Monday, referring to the case filed by the CSRC.

“[GF Securities] will actively cooperate with the CSRC’s investigation efforts and perform its obligation of information disclosure in strict accordance with regulatory requirements,” the brokerage said, advising investors to invest rationally and pay attention to investment risks. “Currently, the operation of the company is normal.”

GF Securities will cooperate with the CSRC’s investigation and perform its obligation of information disclosure in strict accordance with regulatory requirements, the firm says. Photo: Shutterstock Images

The brokerage’s shares dropped 1.82 per cent to HK$11.86 on Tuesday afternoon.

Misho, which offers landscape architecture services, debuted in 2015 on the ChiNext, a Nasdaq-style subsidiary of the Shenzhen Stock Exchange that offers trading for innovative hi-tech start-up companies in China. GF Securities was the sole sponsor of Misho’s IPO and served as an underwriter for its follow-up share issuance.

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The CSRC said that Misho exaggerated profits totalling 457 million yuan (US$66.4 million) between 2012, before its shares traded publicly, and the first half of 2022. The regulator has imposed fines totalling about 30 million yuan on the company and its chairwoman, Wang Yingyan, and has barred her from the industry for life.

GF Securities is the latest brokerage to be investigated by the CSRC amid the full roll-out of a registration-based IPO system designed to make public share sales more market oriented. Northeast Securities, Dongxing Securities, Donghai Securities and Citic Securities have all received warnings and fines for inadequate reviews so far this year.

Last month, the CSRC revealed about 20 cases in 2022 that involved brokerages not performing adequate due diligence, and warned that they must do a better job of playing the role of gatekeeper in securities and futures dealings.

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“The brokers should practice in a prudent way and follow the requirements of regulations strictly. They should conscientiously perform verification and professional due diligence duties, and provide high-quality services for listed companies,” the regulator said in March.