The CSRC officially punished Zhao Wei and his wife, who were banned from the securities market for five years.

Screenshot from official website of China Securities Regulatory Commission.

China Net News April 17 (Reporter Hu Yongping) The noisy acquisition of Wanjia Culture by Zhao Wei and his wife finally came to fruition after a lapse of nearly half a year. On April 16th, the CSRC issued the Decision on Administrative Punishment and the Decision on Market Prohibition in official website, ordering Wanjia Culture and Longwei Media to make corrections, giving them a warning and imposing a fine of 600,000 yuan respectively. Kong Deyong, Huang Youlong, Zhao Wei and Zhao Zheng were given warnings and fined 300,000 yuan respectively. Huang Youlong, Zhao Wei and Kong Deyong were banned from the securities market for five years respectively.

This time, the CSRC issued the official Decision on Administrative Punishment. It has been five months since November 2017, when Wanjia Culture (renamed Xiangyuan Culture) received the Notice of Administrative Punishment and Market Prohibition from the CSRC. During this period, Zhao Wei and Huang Youlong filed a defense with the CSRC.

The punishment decision of the CSRC published the arguments of Huang Youlong and Zhao Wei in detail and refuted them one by one.

According to the facts, nature, circumstances and social harm of the parties’ illegal acts, and according to the provisions of the first paragraph of Article 193 of the Securities Law, the CSRC decided to order Wanjia Culture and Longwei Media to make corrections, give them a warning and impose a fine of 600,000 yuan respectively; Kong Deyong, Huang Youlong, Zhao Wei and Zhao Zheng were given warnings and fined 300,000 yuan respectively.

The decision also states that the above-mentioned parties shall remit the fine to China Securities Regulatory Commission within 15 days from the date of receiving this penalty decision. If a party refuses to accept this punishment decision, he may apply to China Securities Regulatory Commission for administrative reconsideration within 60 days from the date of receiving this punishment decision, or bring an administrative lawsuit directly to the people’s court with jurisdiction within 6 months from the date of receiving this punishment decision. During the period of reconsideration and litigation, the above decision shall not be suspended.

The five-year ban means that during these five years, Mr. and Mrs. Zhao Wei and Mr. Huang Youlong may not continue to engage in securities business in the original institution or serve as directors, supervisors or senior managers of the original listed company, nor may they engage in securities business in any other institution or serve as directors, supervisors or senior managers of other listed companies.

Securities and Futures Commission points out "five sins" of Longwei Media:

1. Longwei Media’s acquisition of listed companies by shell companies and its hasty announcement have seriously misled the market and investors under the circumstances that the funds in its own territory are insufficient and the financing of relevant financial institutions has yet to be approved, and there is great uncertainty.

The acquisition requires a total of 3,059.9 million yuan. In the acquisition plan, Longwei Media has its own funds of 60 million yuan, and the remaining funds are borrowed, with a leverage ratio of 51 times. Only after the signing of the Share Transfer Agreement did Longwei Media negotiate financing with the relevant banks, and the financing funds of this bank need to be approved by the head office, and there is still uncertainty whether it can be finally approved.

Longwei Media was established one month before the acquisition. During this period, the funds were not fully prepared. Under the circumstances that the funds payable in China were limited and the funds to be incorporated by financial institutions were not fully prepared, it adopted a highly leveraged acquisition method and signed an equity transfer agreement. In the case that the performance ability and performance results are not exact, and the authenticity and accuracy of the acquisition behavior cannot be guaranteed, the acquisition information is rashly announced. Due to the superposition of celebrity effect and other factors, its behavior seriously misled the market and investors, aroused great concern from the market and the media, and caused the stock price of Wanjia Culture to fluctuate greatly, seriously disrupting the normal market order.

2. There are false records and major omissions in the information disclosure of Longwei Media about the financing plan and arrangement.

Longwei Media said in its reply to the inquiry letter on January 12, 2017 that it pledged financing of 1,499.9 million yuan to financial institutions, and the disclosed financing amount was inconsistent with the actual situation that CITIC Bank planned to provide financing of 3 billion yuan to Longwei Media.

The payment method disclosed by Longwei Media in its reply to the inquiry letter on January 12, 2017 is a definite step and a definite amount, but it is not completely disclosed that the payment method will be adjusted with the approval of financial institutions.

Longwei Media did not specify the huge uncertainty of financing of financial institutions in the announcement, and there were major omissions.

3. Longwei Media did not disclose the failure to reach financing cooperation with financial institutions in time.

On January 12, 2017, Longwei Media said in its reply to the inquiry letter of Shanghai Stock Exchange through Wanjia Culture that the approval process for stock pledge financing of financial institutions is expected to be completed before January 31, 2017. The evidence shows that on January 23, 2017, Wanjia Group and Longwei Media knew that their financing plan to CITIC Bank Hangzhou Branch had not been approved by CITIC Bank Head Office. As of January 31, 2017, Longwei Media has not reached a financing cooperation with any financial institution.

4. Longwei Media has made major omissions in the disclosure of the reasons for failing to complete the financing plan on schedule.

Longwei Media attributed the failure to complete the financing plan on schedule to the failure of financing approval of financial institutions in the announcement disclosed by Wanjia Culture on February 16, 2017. It did not disclose the fact that Yinbixin did not prepare enough funds when the second equity transfer payment should be paid, and there were major omissions.

5. Longwei Media’s information disclosure about actively promoting the successful completion of this transfer of controlling interest has false records and misleading statements.

On January 12, 2017, Longwei Media said in its reply to the inquiry letter of Shanghai Stock Exchange through Wanjia Culture, "If Longwei Media fails to obtain the stock pledge financing of financial institutions in time and in full, Longwei Media will actively communicate with Wanjia Group to make this transaction complete smoothly, and continue to seek the stock pledge financing of other financial institutions."

The evidence shows that Longwei Media did not actively communicate with Wanjia Group and did not contact other financial institutions to seek financing after the approval of CITIC Bank failed, and there were false records and misleading statements in information disclosure. According to Kong Deyong’s inquiry record, Longwei Media did not actively communicate with Wanjia Group after the financing approval of CITIC Bank failed. On February 7, 2017, Huang Youlong sent Zhao Zheng to directly discuss with Kong Deyong about the termination of the acquisition of the controlling stake. At the same time, Huang Youlong, Zhao Zheng and others also said that after the financing plan of CITIC Bank was not approved, Longwei Media had no contact with other financial institutions.