Part III: Illegal Information Disclosure
Case 1: Be Vigilant of “Flicker-type” Information Disclosure Made by A Listed Company
Source: China Securities Regulatory Commission www.csrc.gov.cn
In the stock market, blue-chip theme stocks likely indicate that a company will have a good development prospect and upside potential, so the stocks of this company are often sought after crazily by the investors. Many listed companies may expand new development areas by means of business transformation and reorganization, and so on, thus to exploit higher development potentials. Nevertheless, some listed companies just “blow bubbles” by making use of blue-chip themes, and mislead and make the investors to seek after their stocks by exaggerating and bloating the effects of relevant businesses on the companies through disclosure of untrue and incorrect information. But the investors can hardly imagine that there is only an illusory vision behind.
Company N has just depicted such an ivory tower to the investors. Before 2014, the business scope of company N was mainly software development and service, and credit risk management and consultancy. Since May 2014, company N has disclosed to the public that it has planned to involve in online finance, thereafter, disclosed a lot of information related to the online finance businesses conducted by it successively, for example, the businesses of data service, credit investigation service and small loan cloud service, establishment of X online finance company with XX commercial bank to conduct online finance-related businesses, and planned to establish Z Online Information Co., Ltd., so as to conduct businesses related to inclusive finance. With disclosure of this information, all the major investment institutions paid immediate attention to company N, and medium and small investors bought the stocks of company N by following suit, in this case, the share price of company N rose by 16 times within one year.
But in fact, such as magnificent online finance map was only an illusion full of uncertainties behind it. The real income of Company N from the online finance-related business was extremely low, only accounting for 0.62% of its main business income. No development strategy of company N related to online finance was presented to the board of directors as well as the strategic development committee under the board of directors of company N for consideration, no relevant work plan and no capital source plan were in place, no substantive progress had been made for the relevant business, and relevant projects suspended because of violating the policies. Furthermore, the online finance-related information disclosed by company N was one-sided, with the positive information disclosed and negative information evaded, and issues in and progress of the above business not disclosed. The online finance business announced by Company N was nothing but depiction and imagination of the prospect, which didn’t have the corresponding factual basis and was nearly impossible to be realized in the future. Nevertheless, it greatly misled the investors to believe that things are getting well.
It happens that there is a similar case. Company D also depicted a beautiful vision for the investors through speculation of themes. Company D took online finance as a hotspot for speculation and announced that its online finance business “might make the company enjoy leading competitive advantage in the online finance sector” while its online finance website was in the preparatory stage and not put into service. The effects of overstatement and bloating on the business of company D misled the investors and caused them to make wrong investment decisions. Because of this disclosure, the share price of company D went up staying for 6 trading days successively, with amount of increase up to 77.37%.
A listed company shall disclose the information, explain the cause to the event, the current situation and possible legal consequences truly, accurately and completely in case that any material change in its operation policy or business scope has taken place, or any decision regarding any major investment behavior or important property to be purchased has been made. Any unreal overstatement or selective information disclosure may cause information asymmetry between the listed company and investors, which likely leads to wrong investment decisions made by the investors because of relying on this information. It is in violation of the relevant provisions stipulated in the Securities Act which specifies that any listed company must disclose its information truly, accurately and completely, and must not make any false records and misleading statement or material misstatement, and is contrary to the open, far and just market transaction order. What’s more, some listed companies try to push their share prices to rise by inventing themes and telling stories, with the purposes to lay the basis for somebodies to sell their shares at high prices. This kind of behavior which makes benefits for somebodies by harming the benefits of the medium and small investors is right the object that shall be cracked down in the capital market.
When facing with the hotspot information disclosed by a listed company, the investors shall sharpen their vigilance when making investment decisions on stocks, be vigilant of not being puzzled by hotspot theme speculation made by any listed company, and shall analyze the accuracy of the relevant information through comprehensive consideration of the macro policies, industry situations and actual conditions of the relevant enterprise, assess the degree of impact of the relevant business on the company, and estimate the investment value behind the information rationally. Meanwhile, the investors shall be vigilant of any behavior for reduction of shares at a high price made by a listed company by ways of telling story and “blowing bubbles”. Otherwise, once “the bubbles” break, the share price and value will come back to the normal level, in this case, the investors will suffer from heavy monetary losses.
This article is excerpted from “Risk Warning and Prevention for Investors” - Cases of “Protecting Investors • Know Rules, Identify Risks - Be Vigilant of “Flicker-type” Information Disclosure Made by A Listed Company” published on the official website of China Securities Regulatory Commission.