Former Leshi IPO committee members detained over troubled video content firm’s 2010 fundraising

Xie Zhongping and Sun Xiaobo – lawyers previously hired by the China Securities Regulatory Commission to review and approve IPOs on the start-up board ChiNext – believed to be under investigation

PUBLISHED : Thursday, 02 November, 2017, 7:18am
UPDATED : Thursday, 02 November, 2017, 7:18am

At least two former members of the mainland securities regulator’s initial public offering (IPO) review committee are believed to have been detained by police for investigation into possible wrongdoings related to the embattled Leshi Internet Information & Technology’s 730 million yuan (US$110 million) fundraising in 2010.

The probe is likely to exacerbate the difficulties already facing the video content company, founded by billionaire Jia Yueting.

Xie Zhongping and Sun Xiaobo, two lawyers previously hired by the China Securities Regulatory Commission (CSRC) to review and approve IPOs on the start-up board ChiNext, are now under investigation for alleged dereliction in assessing the listing application by Leshi, according to two sources close to the CSRC.

Neither lawyer could be reached while the regulator would not comment on Wednesday.

Leshi raised 730 million yuan in mid-2010 through an IPO, amid allegations that its earnings and operating details had been inflated.

Last November, former CSRC senior official Li Liang was charged with helping nine companies, including Leshi, obtain fundraising approvals while taking bribes worth 6.9 million yuan.

“The stock market clean-up campaign will be deepened to protect investors,” said Gong Zhenhua, a partner with Shanghai Ronghe Law Firm.

“But it will take a long time before all questionable fundraising deals in past years can be examined for wrongdoings.”

The finer details of the alleged fraud in Leshi’s IPO have not been unveiled by the regulator.

But the firm is likely to face fines and other punitive measures including possible delisting, if the allegations prove to be true.

Leshi picks new board without its founder, as picketing debtors disrupt shareholders’ meeting

Leshi proposed renaming itself “New Le Shi Information & Technology” in September.

Its parent company LeEco first ran into financial strife at the end of 2016, suffering from a severe capital crunch which Jia admitted had been caused by an over-aggressive expansion plan.

In early January, Sunac China, the property group founded by Sun Hongbin, emerged as a white knight when he agreed to pay 15 billion yuan to buy stakes in Leshi and LeEco’s other subsidiaries.

In July, Sun replaced Jia as chairman of Shenzhen-listed Leshi, pledging to turn around the troubled video streaming player.

Leshi posted a net loss of 1.65 billion yuan for the first three quarters of this year last week.

Trading in Leshi’s shares was suspended in April as the company announced an asset restructuring.

Shares in Sunac plunged 7.2 per cent to HK$36.85 (US$4.7) on Wednesday.

“It will certainly lose money from the investment,” said Liu Feifan, a property analyst at Guotai Junan International Holdings.

“Sunac may need more writedowns due to impairment losses from LeEco.”