China Penalizes Two Brokerages in Crackdown on IPO Fraud

China’s securities regulator punished two brokerages for violating the country’s securities rules and banned four bankers from the industry for life as it steps up a crackdown on fraud in initial public offerings.

The China Securities Regulatory Commission plans to fine Minsheng Securities Co. 2 million yuan ($326,024) for failed due diligence in Shanxi Tianneng Technology Co.’s bid to list shares in 2011 and confiscate the 1 million yuan fee it earned from the deal, the agency said on its website today. Nanjing Securities Co. will be given a warning for a similar offense committed when it advised Guangdong Xindadi Biotechnology Co. in 2012, the CSRC said. The agency said both IPOs were pulled after reports of fraud were published by unidentified media.

Xiao Gang, who took over as CSRC chairman in March, has pledged to step up investor protection and enforcement of regulations as China seeks to bolster confidence in its capital markets. The central bank last month asked participants in its $3.7 trillion interbank bond market to inspect trading histories in a crackdown on illegal transactions, two people with direct knowledge of the matter said at the time.

The securities regulator said today that Tianneng and Xindadi provided falsified financial information in their offering documents. Four bankers involved in the two deals will be fined 150,000 yuan each and banned from the securities market for life, the CSRC said.

A person who answered a call to Minsheng Securities’s headquarters in Beijing today declined to comment or provide the phone number for a spokesman. Phone calls to the offices of Nanjing Securities, Tianneng Technology and Xindadi seeking comment went unanswered outside normal business hours.

Earlier in May, the securities watchdog suspended the underwriting license of Ping An Securities Co. for three months for failed due diligence in the IPO of Wanfu Biotechnology Hunan Agricultural Development Co. in 2011. The regulator also fined Ping An 76.7 million yuan and revoked the licenses of the bankers in charge of the deal.

— With assistance by Aipeng Soo

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