Based on Hainan Poly Pharm's Financial Fraud, Analyzing World's Largest Fraud Market

Why is the A-share market referred to the largest fraudulent market in the world? 

As of January 9, 2025, delisted A-shares do not provide compensation. Numerous companies, after multiple financing rounds through IPOs, corporate bond issuances, private placements, and other means, resort to all possible methods to delist, including but not limited to financial fraud.

In cases of significant financial fraud by companies, investors are punished, while the perpetrators receive only symbolic penalties. The fines imposed on the perpetrators are far less than 1% of their profits. For instance, Hainan Poly Pharm was investigated suddenly on April 16, 2024, for serious financial fraud committed in 2021 and 2022, and was convicted of fraud on January 5, 2025 (The fictitious operating revenue for the years 2021 and 2022 amounted to RMB 1.03 billion, accounting for 31.08% of the annual operating revenue for those two years; the fictitious total profit amounted to RMB 695 million, accounting for 76.72% of the annual profit for those two years). This major negative news caused investors who had held the stock before April 16, 2024, to incur huge losses from the subsequent plunge. Combined with the losses of investors who bought after April 16, 2024, totaling over 3 billion RMB, the company was fined 10 million RMB, and its executives were fined 14.2 million RMB. Such low costs of fraud have led more and more listed companies to imitate such behavior.

Company leaders take the lead in committing fraud, and accounting firms actually confirm the annual reports as true and valid. Taking the severe financial fraud cases of Hainan Poly Pharm in 2021 and 2022 as an example, the chairman took the lead in fraud, and other executives collaborated in the fraud. Tianjian Accounting Firm gave an unqualified audit opinion on its annual reports. As the sponsor for convertible bonds and IPOs, it failed to exercise oversight.

Affected by financial fraud, investors suffer severe losses and can only seek private legal assistance to initiate litigation for compensation, with no other options available. Whether and when compensation will be received, as well as the compensation ratio, are uncertain. Companies engaged in financial fraud simply disappear after making a quick profit.

A-shares offer the most abundant short-selling tools globally. Ordinary investors can only go long unidirectionally and do not have any hedging tools. Unlimited securities lending and unlimited quantization are only provided to large investors and institutions, specifically used to exploit ordinary investors.

Hainan Poly Pharm: 2021 Annual Report.pdf

Hainan Poly Pharm: 2021 Annual Audit Report.pdf

Hainan Poly Pharm: 2022 Annual Report.pdf

Hainan Poly Pharm: 2022 Annual Audit Report.pdf

Hainan Poly Pharm: 2024.04.16 Announcement on Receiving the Notice from Hainan Securities Regulatory Bureau.pdf

Hainan Poly Pharm: 2025.01.05 Announcement on Receiving the "Advance Notice of Administrative Penalty" from the China Securities Regulatory Commission and Risk Warning of Mandatory Delisting Due to Major Violations.pdf

 

tags:
Hainan Poly Pharm's Financial Fraud
Hainan Poly Pharm's Risk Warning of Mandatory Delisting