SCS(SH:601555) Xin Lang Zheng Quan·2025-03-28 09:36Core Viewpoint - ST Lianchuang has been penalized by the China Securities Regulatory Commission for years of financial fraud and information disclosure violations, primarily due to the fraudulent activities of its subsidiary, Shanghai Aotou Network Technology Co., Ltd. [1][3] Financial Fraud Details - From January 2016 to June 2018, Shanghai Aotou inflated its revenue and profit through external funding and fictitious performance, leading to significant discrepancies in ST Lianchuang's financial reports. The inflated revenues for 2016, 2017, and early 2018 were 183.5 million, 355.9 million, and 103.5 million CNY respectively, accounting for 7.87%, 12.86%, and 17.68% of ST Lianchuang's reported revenues during those periods [3][4] - The inflated profit totals for the same periods were 89.4 million, 177.5 million, and 62.2 million CNY, representing 31.32%, 37.85%, and 120.18% of ST Lianchuang's reported profits [3][4] Role of Dongwu Securities - Dongwu Securities acted as the financial advisor during ST Lianchuang's acquisition of Shanghai Aotou and failed to detect the fraudulent activities despite clear red flags, such as the rapid profit growth of a newly established company [1][4][5] - The firm has faced penalties for other financial fraud cases, indicating a pattern of negligence in due diligence [14][15] Impact on Dongwu Securities - Dongwu Securities has seen a significant decline in its IPO underwriting business, with a 85.87% drop in underwriting revenue from 5 billion CNY in 2023 to 707 million CNY in 2024 [19] - The firm has lost its ability to operate in the Shanghai and Shenzhen stock exchanges for equity underwriting projects, with a 75% withdrawal or rejection rate for IPO projects in 2024 [16][19] Client and Supplier Issues - Many of Shanghai Aotou's major clients and suppliers were newly established companies with questionable legitimacy, raising concerns about the authenticity of the reported financial performance [5][10] - For instance, Beijing Zhiyuan, a major client, was established only a year before becoming a top client, and it later faced various operational anomalies [8][9]