Citic Reprimanded for Disclosure Failure During SooChow IPO

Citic Securities Co., China’s largest brokerage, was reprimanded by the nation’s securities regulator for failing to disclose a drop in profit at SooChow Securities Co. when advising on its initial offering.

Both companies received warning letters from the China Securities Regulatory Commission for not disclosing the earnings drop, which happened before SooChow Securities’s IPO prospectus was published, and for not giving additional information about the decline while marketing the shares, the regulator said on its website. The CSRC will also stop processing requests for IPOs from Citic’s representatives that work on SooChow Securities’s listing for nine months.

That penalty is the second since November for Citic Securities. Recent fraud cases have prompted regulators to toughen rules on IPO advisers, asking underwriters last month to inspect clients’ financial statements over the next three months and vowing legal action against issuers and brokers if misconduct is found.

Under Chinese securities rules, warning letters from the regulator can lead to the downgrade of securities company’s rating in a system maintained by the CSRC. Lower rated securities company need to contribute more money to the regulator’s investor protection fund. The ratings also factor into the regulator’s evaluation of requests such as for new branches and products.

Two phone calls to Raymond Tang, a Beijing-based press officer at Citic Securities, seeking comment on the report went unanswered. SooChow Securities posted a copy of the reprimand in a filing with the Shanghai Stock Exchange today. The person who answered the phone at SooChow Securities’ board secretary’s office referred queries about the reprimand to that statement.

Citic Securities declined 3.9 percent to 12.71 yuan in Shanghai today, while SooChow dropped 6.1 percent to 7.42 yuan. The benchmark Shanghai Composite index lost 1.8 percent.

— With assistance by Aipeng Soo

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