The China Securities Regulatory Commission (CSRC) has recently investigated and punished Zoje Sewing Machine Co., Ltd. (Zoje) and Shandong Jiufa Edible Fungus Co., Ltd. (Jiufa) for illegally impropriating listed companies’ capital. According to the relevant rules of the “Securities Law”, the CSRC has planned to impose administrative penalties on the relevant enterprises and persons-in-charge, with the “Advance Notice of Administrative Penalty” already sent out successively.

According to the investigation, Zoje’s largest shareholder is Zoje Holding Group Co., Ltd. (Zoje Group), and its second largest shareholder is Cai Kaijian, the Board Chairman of Zoje Group as well as the Board Chairman of Zoje. According to the investigation, from January 2006 to February 2008, Cai incited others to transfer more than RMB500 million capital of Zoje for many times to Zoje Group for free use by various fraudulent means and evading management procedures of listed companies and normal examination procedures. Since March 2007, Zoje Group has started to return the capital and completed the refund till March 2008.

While in another case, Jiufa’ largest shareholder is Shandong Jiufa Group Corp. (Jiufa Group), and Jiang Shaoqing is the Board Chairman of Jiufa Group as well as the Board Chairman of Jiufa. Jiang transferred Jiufa’s capital to Jiufa Group for free use through Jiufa Group’s related enterprise. The amount involved in this case is more than RMB600 million, which hasn’t been returned so far. In addition, the listed company has also violated laws and regulations such as failure in disclosure of its business with related enterprises and significant guarantees according to the rules and false records in periodical reports.

In the two cases, the above-mentioned behaviors of Cai, Jiufa and Jiang have violated relevant rules of the “Securities Law”, and the CSRC will impose penalties on those enterprises and persons. These behaviors are also suspected of violating one part of Article 169 in the “Criminal Law of the People’s Republic of China”, and the CSRC has referred the cases to the public security authorities for criminal liabilities.

According to the heads of the CSRC’s relevant departments, upon the implementation of the "Criminal Law Amendment Act (VI)", if the directors, supervisors and senior management of listed companies fail to fulfill their loyalty obligations and take advantage of their positions to provide capital, commodities, services or other assets to other entities or individuals for free, leading to significant losses of listed companies’ interests, they are all suspected of crimes. The CSRC has always regarded investigation and punishment of such cases as one of its key tasks, and it will punish every single violation once such case is discovered, so as to protect investors’ legal rights and interests and promote the sound development of listed companies.