SFC obtains DQs against ex-senior execs of Shandong Molong (0568) for faking accounts
Justice Linda Chan criticises the SFC for (1) producing 3 alternative sets of admitted facts on the gravity of the wrongdoing before deciding on the most serious one (knowingly causing the earnings inflation); (2) failing to advance any mitigating factors; and (3) producing 10 bundles of documents that were not needed.
SFC obtains disqualification orders against former senior executives and officers of Shandong Molong Petroleum Machinery Company Limited
Issue date: 2021-03-02 18:25:55
The Securities and Futures Commission (SFC) has obtained disqualification orders in the Court of First Instance against five former senior executives and two officers of Shandong Molong Petroleum Machinery Company Limited (Shandong Molong) for their roles in a scheme to inflate the company’s financial position in six results announcements for the financial years of 2015 and 2016 (Notes 1 to 4).
The sanctioned former senior executives and officers of Shandong Molong at the material time are: Mr Zhang Enrong, former Chairman and Executive Director (ED); Mr Zhang Yunsan, former Deputy Chairman and ED; Mr Yang Jin, former Chief Financial Officer and ED; Mr Guo Huanran, former ED; Mr Zhao Hongfeng, former secretary of the board of directors; Mr Ding Zhishui, finance manager; and his deputy, Ms Yang Junqiu (Note 5).
They were disqualified from being a director or taking part directly or indirectly in the management of any listed or unlisted corporation in Hong Kong, without leave of the Court, for a period of seven to nine years, effective from 26 February 2021 (Notes 6 & 7).
They admitted to overstating revenue and understating costs for the financial years of 2015 and 2016. In doing so, they had failed to present a fair picture of the financial position of the company to its shareholders.
The Court found that Shandong Molong’s business or affairs had been conducted in a manner: (i) involving fraud and misfeasance towards the company and its shareholders ; (ii) resulting in the shareholders of the company not having been given the true and complete information with respect to its business and affairs, in particular, its revenue, expenses and operating results which they might reasonably expect; and (iii) unfairly prejudicial to the company’s shareholders as they were entitled to be provided with true and complete financial information of the company’s business and operating results.
The action follows an investigation into Shandong Molong’s window-dressing of key financial information, including the company’s profit, in its unaudited quarterly and half-yearly results announcements for the first three quarters of 2015 and 2016. As a result, the financial results announcements falsely and misleadingly portrayed a relatively healthy picture of Shandong Molong when in fact it was suffering serious losses.
The disqualification orders was part of the SFC’s proceedings against Shandong Molong in which a court order had been obtained in April 2020 requiring Shandong Molong to reconstitute its audit committee and to appoint an independent external auditor to review its internal control and financial reporting procedures (Note 8).
The SFC would like to acknowledge and thank the China Securities Regulatory Commission for its assistance in the investigation of this case.
- Shandong Molong is a Sino-foreign joint stock company incorporated in the People’s Republic of China. It was listed on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited on 15 April 2004, and transferred its listing to the Main Board on 7 February 2007. It is also listed on the Shenzhen Stock Exchange. It is principally engaged in the manufacture and sale of pipe products, pumping equipment and petroleum machinery.
- The legal proceedings were commenced under section 214 of the Securities and Futures Ordinance (SFO).
- Under section 214 of the SFO, the Court may, among other things, disqualify a person from being a director or being involved, directly or indirectly, in the management of any corporation for a period of up to 15 years, if the person is found to be wholly or partly responsible for the corporation’s business or affairs having been conducted in a manner, amongst other conduct, involving fraud and misfeasance towards the corporation or its members.
- The orders were made following the Court's approval that the proceedings could be disposed of by way of Carecraft procedure where the Court determines the appropriate orders to be made based on an agreed statement of facts and agreed proposed orders.
- Mr Zhang Enrong, Mr Zhang Yunsan and Mr Yang Jin admitted they were the instigators and/or the masterminds of the scheme. The others admitted they were knowingly involved in the scheme.
- Mr Zhang Enrong and Mr Yang Jin are each disqualified from being a director or being directly or indirectly involved in the management of any listed or unlisted corporation in Hong Kong for nine years, Mr Zhang Yunsan and Mr Guo Huanran are each disqualified for eight years, while Mr Zhao Hongfeng, Mr Ding Zhishui and Ms Yang Junqiu are each disqualified for seven years.
- The judgment is available on the Judiciary's website (Case No.: HCMP 1094/2019).
- Please see the SFC’s press release dated 5 May 2020.
- Chan, Linda Ching Fan 陳靜芬
- Ding, Zhi Shui 丁志水
- Guo, Huan Ran 國煥然
- Suen, Jenkin 孫靖乾
- Yang, Jin (1964) 楊晉
- Yang, Jun Qiu 楊俊秋
- Zhang, En Rong 張恩榮
- Zhang, Yun San 張雲三
- Zhao, Hong Feng (1979-08) 趙洪峰