China’s Public Security Ministry Sets Up Liaoning Base to Handle Major Securities Crime Cases

(Yicai Global) March 29 — China’s Ministry of Public Security has established a base in China’s northeastern Liaoning province to handle major securities crime cases.

The Chinese Ministry of Public Security’s base to handle securities crime cases and the Liaoning Provincial Public Security Department’s enforcement office at the Liaoning Securities Regulatory Bureau officially opened on March 26, the Securities Times reported. The Liaoning Securities Regulatory Bureau and the Liaoning Provincial Public Security Department re-signed their Memorandum of Cooperation to Crack Down on Securities and Futures Crimes that same day.

Risks are heightened in the province’s capital market and regulatory efforts are facing serious challenges, the report said. Some companies have constantly pushed the legal bottom line by engaging in illegal activities, marring the image of Liaoning businesses in the capital market, and constraining its further development. Some dealers and stock traders have exploited their information and capital advantages to manipulate share prices in the stock market for illicit gains, grievously harming small and medium investors. The government must clamp down on such legal and regulatory violations to restore market order and safeguard the healthy development of the province’s capital market.

The establishment of the Public Security Ministry’s base to handle securities crime cases and the Liaoning Provincial Public Security Department’s enforcement office at the Liaoning Securities Regulatory Bureau is in line with the standardized development of the capital market and has major practical significance and profound implications for further improving the connection between administrative enforcement and criminal justice and more effectively combating illegal activities.

The Liaoning Securities Regulatory Bureau and the Liaoning Provincial Public Security Department will work together in areas including case-handling, intelligence sharing, execution, enforcement, offering recommendations, training and exchanges to further cleanse the development environment for the local capital market and consolidate the foundation for its healthy development.

Liaoning-based listed companies have seen frequent exposure to risks in recent years. The latest example is China Huishan Dairy Holdings Co. [HKG:6863].

Huishan saw its share price slump suddenly at around 11 a.m. on March 24. Its intraday price plunged by as much as 90.71 percent to USD0.03 (HKD0.25) from HKD2.81 in a record decline for H shares, whereupon the company declared an emergency suspension. As of midday, the drop in the company’s share price narrowed slightly, closing at HKD0.42 per share, down 85 percent. Yang Kai, the company’s board chairman and chief executive, conceded a rupture of the company’s funding chains.

Rumors cite two reasons behind this steep decline in Huishan Dairy’s share price, media reported. One is that after Muddy Waters LLC released two short-sale reports in December, some banks went to Huishan Dairy for an audit and Bank of China Ltd. [SHA:601988] found fraudulent company documents. The other is that Huishan Dairy’s major shareholder embezzled CNY3 billion of company funds invested in real estate, and cannot claw it back.

Huishan denied both versions.