Regulators are taking action after more than $6 billion in cash has disappeared from the books of two Chinese companies, according to Nasdaq reports on Friday (May 17).
A combined $6.1 billion is unaccounted for at the companies, according to drug maker Kangmei Pharmaceutical Co and high-polymer materials producer Kangde Xin Composite Material Group.
The drug maker revealed in April that an “accounting error” led to an overstatement of its cash position in 2017 by about $4.4 billion. Earlier this month, the materials maker said its auditor was unable to find about $1.7 billion that the company said it held in a bank deposit.
Reports said investors are stunned at the revelations, which have prompted Chinese regulators to take action. The nation’s top securities watchdog, Yi Huiman, told reporters at a news conference earlier this month that “those who did bad things must pay the price.” The chairman of the China Securities Regulatory Commission (CSRC) has also announced an initiative to strengthen oversight of corporate governance and impose stricter penalties.
Local media said regulators are investigating Kangmei’s “accounting error,” and are also looking at its auditor, GP Certified Public Accountants. The CSRC has also reportedly opened an investigation into Kangde Xin, and its chairman, Zhong Yu, has been detained.
The publication noted that investors were particularly shocked considering the missing funds come in the form of cash, which “is considered among the hardest assets for a company to fake.”
“If you tell me fish in a pond disappeared, I would probably buy the story,” said Liu Enqi, vice head of Bank of Nanjing, in an interview with Reuters. “Tens of billions of deposits missing, that’s a bit unthinkable.”
Pan Jiang, chief executive of asset manager Shanghai V-Invest Co, said the cases are “beyond description.”
“If regulators just let bad guys walk away, it would be a huge blow to investor confidence,” he said.