Total fines amount to 22.5 million yuan. Derun Electronics' "unconventional" financial fraud case penalty has been implemented.

@Z@ Jingji Reporter Sun Ruxiang, Xia Xin, Beijing Report

ST Derun (Rights Protection) (Derun Electronics, 002055.SZ) announced on March 27. The Shenzhen Securities Regulatory Bureau has issued an《Administrative Penalty Decision》, deciding to issue a warning to the company and impose a fine of RMB 7 million; to issue warnings to three responsible persons and impose a total fine of RMB 15.5 million.

Among them, Derun Electronics’ actual controller, the former chairman and general manager, Qiu Jianmin, was fined RMB 12 million and was subject to a 5-year ban from the securities market; Qiu Jianmin’s son, Derun Electronics’ general manager and director Qiu Yang, was fined RMB 2 million; Derun Electronics’ former chief financial officer Rao Qi was fined RMB 1.5 million.

After investigation, from 2020 to 2021, due to operational difficulties faced by Derun Electronics’ main customers and others, they were unable to repay their debts, causing the company’s cash flow to become tight. Qiu Jianmin, through his own funds, external borrowings, and other methods, provided capital support to Derun Electronics’ customers, its former subsidiaries, equipment suppliers, and others, for the aforementioned parties to repay historical debts to Derun Electronics.

Qiu Jianmin failed to report the actual sources of the above funds to Derun Electronics, resulting in Derun Electronics’ 2020 and 2021 years falsely recording repayments of RMB 395 million and RMB 113 million, respectively, and understating credit impairment losses by RMB 371 million and RMB 66 million, and understating capital surplus by RMB 321 million and RMB 434 million.

In June 2022, Qiu Jianmin coordinated Derun Electronics’ subsidiaries to indirectly provide funds to Derun Electronics’ associates in the form of advance payments for goods, for the associates to repay the financial assistance extended to Derun Electronics upon maturity. This caused Derun Electronics to falsely record repayments of RMB 26.8369 million in the first half of 2022 and understate credit impairment losses by RMB 5.0610 million.

The above conduct led to false records in Derun Electronics’ 2020 annual report, 2021 annual report, and 2022 semiannual report. On January 11, 2022, after completing the relevant non-public issuance, Derun Electronics disclosed the《Non-public Issuance A-share Stock Issuance Situation Report》and the《Listing Announcement》，citing the company’s 2020 annual report and financial data from January to September 2021. There were false records.

On April 29, 2024, Derun Electronics released the《Announcement on Correction of Prior Accounting Errors and Retrospective Adjustments》，stating that the repayment of receivables ultimately derived from the actual controller would allow the repayment’s purpose and commercial substance to be reflected more objectively and fairly, and that it made corrections and retrospective adjustments to prior accounting errors. For the 2020 fiscal year, it increased credit impairment losses by RMB 371 million and increased capital surplus by RMB 321 million; for the 2021 fiscal year, it increased credit impairment losses by RMB 66.39 million and increased capital surplus by RMB 434 million.

Relevant experts told a reporter from The China Business News that the conduct of actual controller Qiu Jianmin, at first glance, looks like “capital infusion” into the listed company, but in legal and accounting essence, it is through constructing an untrue capital circulation to conceal the listed company’s real financial condition and operating risks, thereby infringing on other investors’ right to fair dealing.

“Qiu Jianmin’s conduct, on the surface in terms of business appearance, is ‘capital infusion’ into the listed company, but in legal and accounting essence, the conduct of ‘falsely recorded repayments’ and ‘understated impairment losses’ constructs an untrue capital circulation and compiles false financial information.” Kang Xin, a partner at Deheng Law Offices, said to the reporter.

“Derun Electronics’ actual controller ‘digging into his own pocket’ to quietly help the listed company’s customers repay their debts, resulting in the company falsely recording repayments of over RMB 100 million and understating credit impairment losses; in nature, it is also financial fraud.” Zang Xiaoli from Beijing Shize Law Firm said, “This would mislead investors, making the company’s financial statements look better, leading everyone to think the company’s ‘major customers’ are very high-quality, and it would also keep the company’s stock price at an erroneous and unreasonable high level. And a high stock price often provides more conveniences for the listed company’s major shareholders or actual controller to obtain loans, financing, equity pledges, and more.”

(Editor: Xia Xin; Reviewer: Li Huimin; Proofreader: Yan Yuxia)

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