New tricks in fraud: ST Bai Ling employs elaborate "balancing" methods, while ST De Run engages in fake "blood transfusions"

Log in to the Sina Finance app and search for 【Information Disclosure】 to see more evaluation grade details

After three companies were found and punished on the evening of March 20, within just one week, the capital market once again welcomed a regulatory “heavy fist.”

On the evening of March 27, four more listed companies disclosed penalty notices. Of the three companies that were fined, they had already been labeled “ST.” They are ST Deyrun (rights protection), ST Bailin (rights protection), and ST Mingsheng (rights protection), while Silte will also begin wearing a “cap” starting March 31.

Compared with the cases from a week earlier, the penalties this time show new characteristics. ST Bailin has committed financial fraud for four consecutive years due to problems in how selling expenses are accounted for. Its cross-period adjustment method of “understating expenses first and then overstating expenses later” is relatively rare in the A-share market. In its defense, the company claimed it was “correcting mistakes and rectifying issues,” but the regulator clearly rejected it. Silte and ST Deyrun, meanwhile, reflect a accountability direction of “severely punishing individuals.” The total amount of individual fines is far higher than the company as the main entity. Only the de facto controller Qiu Jianmin of ST Deyrun was fined 12 million yuan, while Silte’s chairman and general manager were both proposed to be fined 3 million yuan each—individual accountability was significantly stepped up.

In terms of problem types, financial fraud is still the “common ailment” among the four companies, and the methods are diverse. ST Deyrun, through the “capital injection” by its de facto controller, fabricated collections of 534 million yuan. Silte adjusted profits through double operations involving fictitious engineering construction and false purchasing and sales. ST Bailin used cross-period expense adjustments to achieve “turnaround into profitability.” ST Mingsheng, in turn, involves multiple areas such as revenue recognition, inventory impairment, and goodwill impairment, with cumulative fabricated profit exceeding 400 million yuan.

Behind this cluster of dense penalty notices, a clear regulatory signal has emerged: financial fraud will be investigated across the board; even proactive corrections after the fact cannot escape accountability; and even after funds misused in violation are returned, penalties still apply.

结合证监会3月27日发布的2025年法治政府建设情况报告——全年查办案件701件、罚没款15.47B元，以及两会期间证监会主席吴清“坚决破除财务造假生态圈”的表态，一个更加规范、透明、可预期的资本市场法治环境正在加速形成。

Image source: Photo by Ma Jingwen

New characteristics of the penalties: ST Bailin’s “cross-period expense adjustment” method is rare; accountability for individuals has been intensified

Among the four penalty notices, ST Bailin’s case is especially attracting attention. This listed company, whose main business is the production and sales of traditional Chinese patent medicines, has a financial fraud method that is entirely different from the traditional forms of fictitious revenue and inflated profits. Instead, it violates the accrual basis principle by conducting cross-period adjustments to selling expenses, resulting in continuous four-year annual report distortions.

According to the “Administrative Penalty Decision” issued by the Guizhou Securities Regulatory Bureau, during 2019 to 2023, ST Bailin did not comply with Article 9 of the “Accounting Standards for Business Enterprises—Basic Standards,” i.e., it did not use the accrual basis as the accounting basis and did not accrue selling expenses according to the principle of matching income, costs, and expenses.

Specifically, in 2019 it understated selling expenses by 350 million yuan and overstated profits by 350 million yuan, accounting for 95.73% of total profits for the period. In 2020 it understated selling expenses by 241 million yuan and overstated profits by 241 million yuan, accounting for 115.35% of total profits for the period. In 2021 it understated selling expenses by 63.7916 million yuan and overstated profits by 63.7916 million yuan, accounting for 45.04% of total profits for the period. By 2023, ST Bailin did the opposite again: it overstated selling expenses by 459 million yuan, understated profits by 459 million yuan, accounting for 93.17% of total profits for the period.

The regulator characterized this operation—understating expenses first and then overstating expenses later—as a “profit-balancing” behavior. In its defense, ST Bailin argued that delaying the accrual of selling expenses was due to industry commonality and objective limitations, and that its overaccrual of selling expenses in the 2023 annual report was a proactive rectification to correct mistakes. But the regulator clearly rejected this explanation, stating that it “does not constitute整改; rather, it is financial fraud itself—by undercounting selling expenses first and then using higher selling expense adjustments to balance out the earlier undercounting of selling expenses in prior periods; it does not fall under整改,” and that the company had subjective fault, causing serious negative impact on the market.

The special aspect of this case is that it reveals a more covert form of financial fraud: using the timing difference in expense recognition to adjust profits. Compared with traditional fraud methods such as fictitious transactions and forged contracts, cross-period expense adjustments are harder to detect. However, the extent to which they destroy the authenticity of financial information is no less than revenue fraud. ST Bailin committed fraud for four consecutive years, and its fraud ratio reached or exceeded 90% in many cases, reflecting severe deficiencies in its internal controls.

At the same time, from the perspective of the strength of individual penalties, these four companies show new features of “heavily punishing individuals” or “shared punishment for individuals and the company.” Taking ST Deyrun as an example: the company was fined 7 million yuan, while the total amount of individual fines was as high as 15.5 million yuan, of which 12 million yuan was imposed on de facto controller Qiu Jianmin alone. At the same time, a 5-year ban from the securities market was also imposed. Although Silte has not yet issued a formal penalty decision, based on the advance notice document, the company is proposed to be fined 6 million yuan, and the seven individuals in total are proposed to be fined 13.6 million yuan. Among them, both the chairman and the general manager were proposed to be fined 3 million yuan each, reaching half of the company’s penalty. ST Bailin’s total individual fines are 8.5 million yuan, also close to the company’s 10 million yuan fine.

Under this “dual-penalty system,” the high individual fines mean that regulators are significantly increasing accountability toward the “key minority.” When listed companies violate laws and regulations, especially top executives—particularly de facto controllers, chairmen, and general managers—are becoming a focus of regulatory enforcement.

Common issues: financial fraud and illegal guarantees remain top problem areas; fictitious transaction methods are diverse

Among the disclosed penalty information of the four companies, financial fraud is the most concentrated issue, with different methods and clear diversification.

ST Deyrun’s fraud method is quite “creative.” Because its main customers faced operational difficulties and genuine collections were blocked, de facto controller Qiu Jianmin provided funding support to the company’s customers, former subsidiary companies, and equipment suppliers—using his own funds and external borrowings—to enable these parties to repay the company historical debts. Qiu Jianmin did not report the actual source of the funds to the company, leading to the company fabricating collections of 395 million yuan, 113 million yuan, and 26.8369 million yuan in 2020, 2021, and the first half of 2022 respectively, with total fabricated collections exceeding 534 million yuan. This operation not only inflated the collections amount, but also caused the company to understate credit impairment losses, thereby inflating profits.

It is worth noting that this kind of method—manufacturing collection illusions by having the de facto controller “inject capital”—is relatively typical among A-share fraud cases. Its covert nature lies in the fact that the funds indeed entered the company’s bank accounts; only the source was deliberately concealed.

Silte’s financial fraud involves two fictitious businesses. First, it compiled fictitious trolley boring machine construction contracts and settlement sheets through its wholly owned subsidiary Guizhou Lufa, and signed fictitious engineering construction contracts with multiple companies, resulting in artificially inflating total profit in 2021 by 45.804 million yuan and artificially reducing total profit in 2023 by 17.3485 million yuan. Second, through fictitious urea procurement and organic fertilizer sales, it overstated operating costs and operating revenue, leading to artificially reducing total profit in 2021 by 9.4573 million yuan. In total, Silte inflated total profit in 2021 by 36.3467 million yuan and reduced total profit in 2023 by 17.3485 million yuan. This kind of operation that both inflates and deflates across years reflects the company’s possible smoothing of performance by adjusting profits in different periods.

ST Mingsheng’s problems are even more complex, involving three major categories: undisclosed related-party guarantees, false records, failure to disclose arbitration information in a timely manner, and related-party transactions. In terms of financial fraud, ST Mingsheng did not confirm equity repurchase debt of 20.21 million yuan in 2020; in 2021 it overstated revenue by 98.42 million yuan through inaccurate recognition of Spanish licensing copyright income; and it understated impairment for inventories and goodwill by 98 million yuan and 213 million yuan respectively, with cumulative overstated total profit reaching 409 million yuan.

In addition to financial fraud, illegal guarantees and fund occupation issues are also prominent. In ST Mingsheng’s 2020 annual report, related-party guarantees with a large amount that were not disclosed include providing guarantees of approximately 660 million yuan for a loan by Dangdai Investment, providing guarantees of 750 million yuan for a loan by Yushi Mining, providing a guarantee of 150 million USD for obligations to pay the AFC by Xinying Cayman, and providing guarantees of 7 million yuan for loans by the Dangdai Football Club. In 2022, ST Mingsheng also delayed disclosure of arbitration information totaling 334 million yuan, as well as a related-party transaction of 20.97 million yuan.

From the common issues among the four companies, the methods of financial fraud are constantly being updated—from traditional fictitious revenue and profit inflation, to cross-period expense adjustments and fabricating collections via “capital injection” by the de facto controller, and then to adjustments across multiple stages such as revenue recognition, impairment accruals, and liability recognition. The concealment and complexity of the fraud are increasing. Meanwhile, illegal guarantees and fund occupation issues persist, becoming “undercurrents” that siphon value from listed companies.

New regulatory characteristics: strict crackdown on financial fraud; delisting does not mean no liability; even returning misused funds results in penalties

Based on the four companies’ penalty situations, combined with the latest disclosed regulatory data from the CSRC and policy signals from the Two Sessions, current capital market supervision shows three new features.

First, financial fraud is investigated strictly across the board; corrections after the fact do not exempt penalties. In ST Bailin’s case, the company claimed that in 2023 it balanced out earlier underaccrued expenses by overaccruing selling expenses, which constituted “proactive rectification to correct mistakes.” However, the regulator clearly determined that this is not rectification, but financial fraud itself. This is consistent with the ST Dongshi (rights protection) case from a week earlier— even if the company proactively releases a corrective disclosure announcement, it cannot change the regulator’s factual finding that the company violated information disclosure requirements. The regulator’s determination of financial fraud is no longer limited to whether information was concealed; it focuses on whether it occurred. Remedial actions taken after the fact cannot be a basis for exemption.

Second, accountability for the “key minority” has been significantly intensified. From the proposed and imposed penalties—Qiu Jianmin, de facto controller of ST Deyrun, fined 12 million yuan; Jiang Wei, chairman of ST Bailin, fined 5 million yuan and banned from the market for 10 years; and both Silte’s chairman and general manager proposed fines of 3 million yuan each—it can be seen that the fines for individual responsible persons are now equal to, or even higher than, the fines imposed on the company as the main entity. The execution of these high penalties under this “dual-penalty system” means that top executives, especially core personnel, must bear real financial costs for the company’s illegal and noncompliant actions, not just symbolic warnings. This aligns with the CSRC’s regulatory record of 45.8M yuan in fines and confiscations for the full year of 2025, showing that a “tough with teeth” regulatory tone with clear edges and corners is continuing to deepen.

Third, funds illegally occupied must be returned, and penalties still apply after the return. Even though de facto controller Qiu Jianmin of ST Deyrun “injected capital” to help the company with collections using his own funds and external borrowings, these funds are essentially a variant of funds占用 by related parties. Qiu Jianmin was ultimately penalized 12 million yuan and banned from the market for 5 years. This case clearly shows that the regulator’s stance on fund occupation is no longer limited to “recovering the money is enough.” It has been upgraded to “illegal occupation brings penalties, and returning the money also brings penalties,” aiming to curb at the root the impulse of controlling shareholders to encroach upon the interests of listed companies.

From a more macro perspective, the CSRC’s 2025 report on the development of rule-of-law government shows that throughout the year, the CSRC handled 701 cases, collected 15.47B yuan in fines and confiscations, and transferred 172 case-finding leads suspected of crimes to public security authorities. These figures directly reflect that strict regulation is becoming normalized. In addition, during the Two Sessions, CSRC chairman Wu Qing’s statement pointed to the next direction of supervision: further intensify efforts to investigate financial fraud by listed companies; strengthen integrated crackdowns on third-party assistance in fraud; strictly implement mandatory delisting requirements for fraud companies; resolutely remove “bad apples”; and resolutely break up the “ecosystem circle” of financial fraud.

It can be expected that with the introduction and implementation of the “Regulations on the Supervision of Listed Companies,” and the advancement of building a center for discovering leads on financial fraud and a monitoring and early-warning mechanism for third-party assistance in fraud, future crackdowns on financial fraud and other illegal and noncompliant behaviors will be more precise and more in-depth. For market participants, a more regulated, transparent, and predictable A-share ecosystem is accelerating its formation. For those still trying to harm the interests of listed companies through financial fraud, illegal fund occupation, and similar means, the four penalty notices on the evening of March 27 are undoubtedly a loud wake-up call.

(Author: Cui Wenjing; Editor: Bao Fangming)

（Sina Finance app）