The intern's video turmoil led to the compliance issue of China Securities Construction Investment: It has been warned by regulators many times, and the investment banking business has been questioned

The intern's leakage of IPO materials rushed to the hot search, once again raising public questions about CSC's compliance and risk control

"China Science and Technology Investment", Long Min, Long Qiuyue

Recently, the short video incident of securities interns of China Securities Construction Investment (601066.SH) has continued to ferment. On July 27, China Securities Construction Investment publicly responded that the company will deeply summarize, seriously reflect, make solid rectifications, and draw inferences from one case to another to further improve the company's management system, internal control and personnel management.

The reporter noted that since the beginning of this year, China Securities Construction Investment has been repeatedly warned by the stock exchange and local securities regulatory bureaus. Previously, a number of CSC-sponsored projects were caught in fraudulent issuance cases, and the performance of IPO-sponsored projects after listing "changed face" almost became the norm. The public opinion turmoil caused by the intern incident also reflects the problems existing in CSC's own compliance risk control and practice quality.

Frequently subject to regulatory warnings

On July 19, the Shanghai Stock Exchange's Regulatory Measures Decision [2024] No. 43 showed that China Securities Construction Investment and two sponsor representatives, Yan Yan and Lv Yingxia, in the process of sponsoring the listing of Zhengzhou Hengda Intelligent Control Technology Co., Ltd., had the following sponsor responsibilities not in place, including insufficient verification of R&D expenses and inadequate implementation of confirmation procedures. In addition, the on-site inspection found that the sponsor did not properly verify the issuer's independence-related matters such as procurement through the controlling shareholder's bidding platform and joint application for invention patents with the controlling shareholder, and there were omissions in the verification working paper of the issuer's capital increase. As a result, the Shanghai Stock Exchange issued a regulatory warning to China Securities Construction Investment and the two sponsor representatives.

At the beginning of July, China Securities Construction Investment had just received a regulatory letter from the Shenzhen Stock Exchange. On September 8, 2022, Yunding Technology (000409.SZ) raised 868 million yuan through non-public issuance of shares. On October 28, 2022, the raised funds were transferred out of the special account for raising funds to supplement liquidity and repay debts. As the sponsor of the project, CSCI failed to be diligent and conscientious, and failed to continuously supervise the listed company to improve its system and take measures to standardize the raised funds to replenish liquidity and repay debts. The Shenzhen Stock Exchange decided to take self-regulatory measures of written warning against CSC.

On June 19, China Securities Construction Investment received a decision on regulatory measures issued by the Shanghai Stock Exchange and was given a regulatory warning. As the sponsor of Dashenlin (603233.SH) to apply for the issuance of shares to specific targets, CSCI failed to be diligent and conscientious during the project sponsorship period, and failed to timely discover that the wholly-owned subsidiary of the issuer was investigated by the supervisory authorities, and one of the actual controllers and then directors was investigated by the judicial authorities on suspicion of bribery, and reported to the Shanghai Stock Exchange.

On May 14, China Securities Construction Investment was taken by the Shanghai Stock Exchange to give regulatory warning due to the failure to perform its sponsor duties in the IPO sponsorship project of Shenzhen Zhongxing New Material Technology Co., Ltd. In the same month, China Securities Regulatory Bureau took the regulatory measure of issuing a warning letter and recorded it in the integrity file of the securities and futures market for failing to diligently perform its continuous supervision obligations in the 2019 public issuance of convertible corporate bonds by Jiangsu Changshu Auto Decoration Group Co., Ltd. and publishing untrue verification opinions in previous special verification reports on the actual use of raised funds.

On April 30, the Beijing Securities Regulatory Bureau decided to take administrative supervision measures against China Securities Construction Investment to order it to increase the number of compliance inspections. After investigation, the company was not prudent in carrying out over-the-counter options and proprietary business, and there was a situation where the management of employees was not in place, and corporate governance was not standardized. The Beijing Securities Regulatory Bureau ordered CSCI to conduct internal compliance inspections every three months within one year from the date of issuance of the regulatory measures, and to submit a compliance inspection report to the bureau within 10 working days after each inspection. On April 24, China Securities Construction Investment, as the lead underwriter and trustee of the bond "23 Gedi 01" of Gree Real Estate Co., Ltd., was taken by the Guangdong Securities Regulatory Bureau to issue a warning letter due to insufficient traces in the working papers of the consulting and auditing institutions, failed to make interview records with the management of the issuer, and failed to disclose the temporary trustee management affairs report to the issuer's major losses.

In January this year, the Shenzhen Stock Exchange decided to take self-regulatory measures of written warnings against the two sponsor representatives, China Securities Construction Investment, Wang Haoji and Fang Yingjian, because it failed to pay sufficient attention to the market situation of the issuer and the situation of comparable companies in the same industry in the IPO sponsorship project of Xintianxia Technology Co., Ltd., failed to fully verify the issuer's sales to end customers, and did not prudently express professional opinions on the issuer's performance expectations and urged the issuer to improve the quality of information disclosure.

According to the 2023 annual report, in the list of listed companies and their directors, supervisors, senior managers, controlling shareholders and actual controllers suspected of violations of laws and regulations, penalties and rectifications, China Securities Construction Investment listed a total of 8 items (excluding matters after the period), while the number listed in 2022 was only 4.

The quality of investment banking practice has been questioned

Wu Qing, chairman of the China Securities Regulatory Commission, delivered a speech at the "·May 15 National Investor Protection Publicity Day" in 2024, mentioning that it will further crack down on securities violations and crimes in accordance with the law. Illegal and criminal acts such as fraudulent issuance, financial fraud, insider trading, and market manipulation are cancers in the capital market and seriously infringe upon the legitimate rights and interests of investors.

Last year, China Securities Construction Investment was convicted of co-financing with other intermediaries to compensate investors for losses of 1.086 billion yuan due to the fraudulent issuance of the IPO of Guangdong Amethystum Information Storage Technology Co., Ltd. (hereinafter referred to as "Amethystum Storage"). In June this year, intermediaries such as China Securities Construction Investment recovered 1.086 billion yuan in compensation from Amethystum Storage that had been advanced to investors.

In May this year, the China Securities Regulatory Commission issued the "China Securities Regulatory Commission Decision on the Punishment of Evergrande Real Estate Bonds Fraudulent Issuance and Information Disclosure Illegal Case", after investigation, during the 2019-2020 period, Evergrande Real Estate falsely increased its income and profits by recognizing income in advance, resulting in fraudulent issuance of bonds in the exchange market, and there were false records in the relevant annual reports disclosed. Evergrande Real Estate issued five bonds totaling 20.8 billion yuan at that time, of which China Securities Construction Investment was the sole lead underwriter of four phases, and the remaining one was the lead underwriter. In April this year, the Xiamen Securities Regulatory Bureau found that *ST Hongxiang (300427.SZ) had committed financial fraud for six consecutive years from 2017 to 2022, and the non-public issuance of shares in 2019 and the public issuance of convertible corporate bonds in 2020 constituted fraudulent issuance, and there were material false records in the issuance documents of the announcement of applying for the issuance of shares and paying cash to purchase assets and raise matching funds in 2020. *The sponsor or financial adviser of the three fraudulent issuances of ST Hongxiang is China Securities Construction Investment.

The performance of the IPO project sponsored by China Securities Construction Investment has "changed face" after listing, which has also aroused doubts from investors. In November 2021, Henghe Co., Ltd. (832145.BJ), sponsored by China Securities Construction Investment, saw its operating income and net profit decline by 42.26% and 46.73% year-on-year respectively in the first year of listing. In the following two years, the net profit attributable to the parent company continued to decline, falling by 65.21% in 2022 and 248.4% in 2023. Longsys (301308.SZ), sponsored by China Securities Construction Investment, maintained a growth rate of about 30% in operating income and a triple-digit growth rate in net profit attributable to the parent company from 2019 to 2021 before listing; However, the net profit attributable to the parent company fell by 92.81% in the year of listing; In 2023, the net profit loss attributable to the parent company will be 828 million yuan, a year-on-year decrease of 1237.15%.

The reporter combed and found that the IPO project sponsored by China Securities Construction Investment in 2023 is not a case of "changing face" after listing. In 2023, 301260.SZ the company will achieve operating income of about 4.617 billion yuan, a year-on-year decrease of 11.4%; The net profit attributable to the parent company was -474 million yuan, a year-on-year decrease of 278.4%. Glebo lost money in the year of listing, and the performance announced in the official annual report exceeded the scope of the performance forecast, and received an inquiry letter issued by the Shenzhen Stock Exchange. Dingzhi Technology (873593.BJ) will achieve operating income of 282 million yuan in 2023, a year-on-year decrease of 11.31%; The net profit attributable to the parent company was 80.91 million yuan, a year-on-year decrease of 19.8%. Hunan Yuneng (301358.SZ) will achieve operating income of 41.358 billion yuan in 2023, a year-on-year decrease of 3.35%; The net profit attributable to the parent company was 1.581 billion yuan, a year-on-year decrease of 47.44%.

In addition to the problem of compliance and risk control, China Securities Construction Investment is also facing the dilemma of declining performance. In 2023, China Securities Construction Investment will achieve operating income of 23.243 billion yuan, a year-on-year decrease of 15.68%; The net profit attributable to the parent company was 7.034 billion yuan, a year-on-year decrease of 6.45%. For two consecutive years, China Securities Construction Investment has handed over a report card with a year-on-year decline in revenue and net profit. In the first quarter of this year, the operating income of China Securities Construction Investment was 4.294 billion yuan, a year-on-year decrease of 35.91%; The net profit attributable to the parent company was 1.228 billion yuan, a year-on-year decrease of 49.39%.

In response to the compliance risks and practice quality of China Securities Construction Investment, the reporter sent a letter to China Securities Construction Investment, but as of press time, no reply has been received.