Large-scale fund occupation and disclosure violations: San Te Suo Dao receives a multi-million yuan fine; former actual controller is banned from market participation for life

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On March 29, Caixin reported (Journalist Zhang Chenjing and Hu Haoqiong) that after two years, San Te Cableway (Rights Protection) (002159.SZ) faced a severe regulatory action concerning suspected violations of information disclosure regulations. Today, San Te Cableway announced the “Advance Notice of Administrative Penalty,” as it failed to timely disclose related party transactions and had significant omissions in its annual report, resulting in a fine of 10.5 million yuan, while the original actual controller, Ai Luming, was banned from the market for life.

According to the investigation by the Hubei Securities Regulatory Bureau, San Te Cableway’s violations were primarily focused on the non-operating fund occupation by related parties and information disclosure violations. Since 2019, due to the funding needs of the indirectly controlled shareholder, Contemporary Group, San Te Cableway transferred funds to the designated recipient of Contemporary Group, which ultimately went to Contemporary Group and its related parties and partners, resulting in non-operating fund occupation by related parties.

Specifically, from August 3, 2020, to December 2020, San Te Cableway failed to timely disclose the amount of funds transferred to the indirectly controlled shareholder, Contemporary Group, totaling 340 million yuan, which accounted for 31.89% of the latest audited net assets. In 2021, San Te Cableway failed to timely disclose the amount of funds transferred to Contemporary Group, which totaled 1.904 billion yuan, accounting for 131.67% of the latest audited net assets. In January 2022, San Te Cableway failed to timely disclose the amount of funds transferred to Contemporary Group, which totaled 500 million yuan, accounting for 34.58% of the latest audited net assets.

At the same time, in 2019, San Te Cableway had a non-operating fund occupation with Contemporary Group totaling 1.423 billion yuan, which accounted for 133.49% of San Te Cableway’s net assets in 2019. In 2020, the non-operating fund occupation with Contemporary Group was 370 million yuan, accounting for 25.59% of the net assets in 2020. San Te Cableway did not disclose this in its annual reports for 2019 and 2020, leading to significant omissions in the annual reports.

In response to these violations, the Hubei Securities Regulatory Bureau intends to give San Te Cableway a warning and impose a fine of 10.5 million yuan. It is important to note that the penalty for the then-actual controller Ai Luming amounts to 11 million yuan, and other four responsible individuals were fined between 2.5 million and 4.5 million yuan.

The Hubei Securities Regulatory Bureau pointed out in the notice that Ai Luming directed San Te Cableway to engage in the illegal activities involved in this case. The behavior is serious, with severe violations, and he has previously been subjected to market entry bans by the bureau within the last five years; therefore, a lifetime securities market ban has been imposed on Ai Luming.

The non-operating fund occupation matters related to the original controlling shareholder mentioned in the “Notice” have all been returned in cash, including principal and interest, by April 2022. Public information shows that San Te Cableway’s main products include scenic transportation products primarily based on cableways and sightseeing products mainly based on natural resources. The company stated that this incident did not involve major illegal mandatory delisting situations or other risk warnings, and as of the announcement disclosure date, the company’s production and operational activities are all normal.

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