By Jenny Li
April 21, 2023 Updated:
April 21, 2023
A man walks past the
Fosun International Center in Beijing on Sept. 23, 2019, the local headquarters
of the Shanghai-based Fosun Group. (Wang Zhao/AFP via Getty Images)
The chief financial
officer (CFO) of a Hong Kong-listed Chinese company, Babytree, has exposed his
company’s alleged fraudulent IPO (initial public offering), and his alleged
co-conspirator is an NYSE-listed Hong Kong financial institution. The firm has
helped list dozens of Chinese companies in Hong Kong and U.S. stock exchanges.
On April 11, Babytree
Group’s CFO Xu Chong alleged that several Fosun subsidiary companies, including
Babytree, had faked their IPOs. Babytree, a Chinese mother-and-baby e-commerce
and community platform, was listed on the Stock Exchange of Hong Kong (HKEX) on
Nov. 27, 2018.
Xu alleged that during
the IPO process, several key directors resolved to expand the size of the IPO
due to a lack of subscriptions for the company’s financing orders. The company
agreed with an investment firm, AMTD, to subscribe for $70 million in IPO
orders and promised to “return” the entire $70 million to AMTD on the day of
the IPO. On the day Xu blew the whistle on the story, the board of directors of
Babytree announced that he would be terminated as the company’s CFO.
U.S. economist Davy Jun
Huang told The Epoch Times on April 15 that, essentially, what those companies
allegedly did was pay for a third party to buy their own stocks and shares to
mislead the market into believing that it had investment value or to meet the
listing requirements. In other words, companies like Babytree had allegedly
faked the size of their IPOs. This type of operation has been a mature practice
for nearly 20 years and is “commonplace” in the financial and accounting
fields.
AMTD
Helps List Dozens of Companies
AMTD Group was founded by
Hong Kong’s wealthiest billionaire Sir Ka-shing Li. After introducing a new
shareholder, Morgan Stanley Private Equity Asia (MSPE), the company’s
day-to-day management transferred to Hong Kong-based businessman Calvin Choi,
who controls AMTD Group now. In August 2019, AMTD Group was listed on the New
York Stock Exchange.
Since 2016, AMTD Group
has helped various Chinese tech companies and banks to list on U.S. and Hong
Kong stock markets. However, AMTD’s companies have been rumored to have poor
performance or executive corruption. For example, on Dec. 30, 2019, after
listing at an issue price of HK$2.48 per share, Guizhou Bank broke during the
day; its market capitalization evaporated by nearly HK$1.9 billion in four days
after listing.
AMTD Group also completed
the H-Share HK IPO for Jiangxi Bank in 2018. In March 2022, Chen Xiaoming,
former Chinese Communist Party (CCP) Secretary and Chairman of the Board of
Directors of the Bank of Jiangxi was investigated for alleged law violations.
In December 2022, Chen was accused of misusing state-owned financial assets for
personal gain, using financial loan approval authority to make illicit gains,
and receiving large bribes.
Huang said: “If Xu
Chong’s information were true, this would be a blatant financial fraud or even
a carefully planned scam.”
Another
Company Boss Sent to Prison
Although Xu Chong’s
allegations are not yet fully proven, his exposure of another company that
conspired with Babytree to commit fraud, whose boss was arrested for fraud and
other crimes back in 2019, adds credibility to Xu Chong’s allegations. This
company was Guangdong CSM Venture Investment Management Co., and Xu alleged
that this company also participated in helping Babytree to fake its IPO.
Zhang Wei, the founder of
Guangdong CSM, was arrested on April 10, 2019, on charges of gang-related
crimes, extortion, and online fraud. On Nov. 26, 2021, Zhang was sentenced to
life imprisonment for 11 charges, including organizing a crime ring and
illegally removing public funds.
Huang believes that Zhang
Wei’s financial platform was conducting illegal fundraising, financial lending,
and financial fraud in the name of wealth management. If Babytree was involved
as a symbolic investor to help Guangdong CSM mislead the public, the
possibility of financial crimes would be very high.
Counterfeiting
is Common
For years, the CCP has
ordered Chinese companies not to turn over their original financial
certificates to U.S. regulators, creating a convenient environment for them to
commit fraud and making China’s listed companies notorious for doing as such.
In June 2013, the U.S.
Securities and Exchange Commission (SEC) charged China Media Express, which
operates an advertising network on China’s intercity and airport express
trains, with falsely reporting its operations, financials, and profits. In
addition to grossly inflating its cash assets, the company falsely claimed in
public filings and press releases that two multinational companies were its
advertisers. That was not the case.
In September 2014, the
SEC charged AgFeed, a Chinese fertilizer company, with falsely reporting
revenue from its China operations from 2008 through June 30, 2011, which inflated
the company’s publicly reported revenue by approximately $239 million. Company
executives used various methods to inflate revenue, including using false
invoices for sales and “selling” non-existent hogs.
In December 2020, the SEC
charged Chinese coffee chain Luckin Coffee with knowingly fabricating more than
$300 million in retail sales from April 2019 to January 2020 through three
separate procurement programs that used business partners to create false sales
transactions.
The SEC imposed a $180
million fine on Luckin after certain Luckin employees attempted to conceal the
fraud by inflating company expenses by more than $190 million, creating a false
operations database, and altering accounting and banking records to reflect
falsified sales.
In December 2020, the
U.S. Congress passed the Holding Foreign Companies Accountable Act, which the
SEC used as a basis to force China to agree in August 2022 to allow the U.S.
Public Company Accounting Oversight Board (PCAOB) to conduct a comprehensive
review of the audit transcripts of Chinese companies listed in the United
States under U.S. standards.
China’s
Financial Markets a Hotbed for Fraud
Huang said: “The practice
of falsifying information in order to go public has been going on for a long
time, and Western countries have experienced a very long battle against it in
its financial markets. Now, China concepts stock and the Chinese financial
markets are being the worst hit.”
In China, the financial
markets function in a way that can make people rich overnight and is where the
powerful elites in the country seek high-risk and high-return investments. It
is also where the most serious falsifications occur, and the level of
supervision has not been able to keep up with the falsification. In addition,
the amount of transactions is massive, Huang said.
The CCP’s propaganda is
tightly controlled and will always defend the country’s financial markets. The
regime would refuse to admit that its markets are a hotbed for fraud. Civilians
who invest in fraudulent companies often suffer massive losses and are never
compensated.
Huang also suggested that
the richest individuals in China in the past 20 years were all making money
through IPOs, and huge amounts of wealth have been accumulated at the expense
of the common people in China who invested in stocks seeking to make a profit.
Ultimately, only the wealthy CCP-affiliated elites are profiting in China’s
financial markets.
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