The China Securities Regulatory Commission (CSRC) imposed severe administrative sanctions on Evergrande Real Estate Group, the flagship subsidiary of real estate developer Evergrande Group, for alleged fraudulent bond issuances and violations in information disclosure. It slapped a fine of CNY4.175 billion on Evergrande, while its former Chairman and actual controller Xu Jiayin received the maximum legal penalty of CNY47 million and has been banned from the securities market for life. The move signals a heightened commitment from the country’s regulators in restoring the confidence of investors and homebuyers in the property market, said legal experts. They said Xu and other financial executives of the group are expected to face criminal charges under relevant laws and regulations, which may result in prison terms of more than five years due to the severity of the violations. According to the CSRC, between 2019 and 2020, Evergrande inflated its revenue and profits by prematurely recognizing income, leading to fraudulent bond issuances. It said the company’s annual reports disclosed during this period contained false records.
The penalty imposed on Evergrande’s fraudulent bond issuances was calculated at 20% of the funds raised according to law, while information disclosure violations were fined at the maximum legitimate amount. This marks “the strictest enforcement” since 2018, when a unified enforcement system was established for both the interbank bond and exchange bond markets, the Commission said. Dai Guanchun, Senior Capital Markets Lawyer, said it is “almost inevitable” that Xu and the financial executives responsible will also face criminal penalties as the severity of their violations meets the legal standards of criminal prosecution. “At a time when China has introduced ‘nine measures’ to better regulate the capital markets, it is crucial to deal with the Evergrande case fairly and properly, as it has drawn widespread public attention,” Dai said. It is likely that Xu will face a fixed-term imprisonment of more than five years, in accordance with China’s Criminal Law. The CSRC said it will continue to rigorously combat financial fraud in the securities market, “giving real teeth” to regulation and enforcement, the China Daily reports.
