Hong Kong Securities Regulatory Commission: Obtaining a 13-year disqualification order against three former senior officials of Chinese Confectionery

The Zhitong Finance App learned that on August 6, the Hong Kong Securities Regulatory Commission obtained a 13-year disqualification order in the Court of First Instance against three former senior employees of China Candy Holdings Limited (China Candy) because they participated in a number of carefully planned plans to mislead the auditors and disguise the company's true financial situation by falsifying accounting records, thereby greatly exaggerating the company's cash and bank balances.

The three former senior officials were Xu Jinpei (male), former Chairman and Executive Director; Hong Yinzhi (female), former Executive Director, Chief Executive Officer and Compliance Officer; and Wang Zhihong (male), former Chief Financial Officer and Compliance Officer.

According to the relevant order, they may not act as directors or liquidators of any listed or unlisted corporation in Hong Kong, or as receivers or managers of the property or business of such corporation for a period of 13 years without court permission.

The court's order against the three also marks the end of legal proceedings initiated by the Hong Kong Securities Regulatory Commission against the former directors and senior executives of China Confectionery in the Court of First Instance.

The court ruled that the cash and bank balances reported in China Candy's “2016 Interim Report” and “2016 Annual Report” were inflated by RMB 38.1 million and RMB 43.48 million respectively, which is equivalent to 87% and 97% of the reported balance. The court determined that such exaggerations were not pure accounting errors, but were part of a plan to boost cash and bank balances, which was achieved through fictitious deposits, unrecorded transactions, and setoffs after reporting deadlines. These fraudulent acts are all covered up by falsifying bank documents, bank statements, and accounting vouchers.

Specifically, the court ruled that:

China Confectionery created a false impression of holding large amounts of cash by recording fictitious deposits in the account shortly before the reporting deadline and writing off the deposits shortly thereafter;

Xu, Hong, and Wang hold senior positions in the management, finance and compliance functions of China Confectionery to enable them to promote, approve, acquiesce in or continue the relevant plans;

Hong was the alleged payer or payee of 85 of 116 unrecorded transactions and the alleged payer or payee of 30 of the 57 non-existent transactions, directly linked to the relevant plan;

Wang is responsible for recording forged vouchers and bank documents arranged by him and/or employees working under his supervision; and

The purpose of the promotion balance and falsification plan is to circumvent standard audit inspections, including providing falsified financial information to the auditors of China Confectionery for mid-term reviews and annual audits.

Mr Michael Duignan (Mr Michael Duignan), Executive Director of the Regulatory Enforcement Department of the Hong Kong Securities Regulatory Commission, said, “Accurate corporate financial reporting is the foundation for a clean and stable market and investor confidence. Senior executives, including non-director finance professionals, will be held liable if they commit misconduct involving falsification of records, distorted financial statements, improper facilitation, or ignoring serious irregularities. Those responsible for maintaining corporate integrity may be removed from their positions of corporate responsibility for a long time if this in turn undermines corporate integrity.”