Part IV: Illegal Operation by Market Subject
Case 2: Don’t Believe All Sweet Words, Discard the False and Retain the True only through Rational Analysis
Source: China Securities Regulatory Commission www.csrc.gov.cn
This listed company, as a public company, must abide by the rules and stick to honesty. The fundamental obligation that the listed company shall be fulfilled is to ensure that the information disclosed by itself be true, accurate and complete. If the investors have been fooled by the false information made up and inexistent things disclosed by it, undoubtedly, it will be punished.
In 2013, the stock price of company A rose sharply for three days in a row, with accumulated price fluctuation exceeding 12%, so the stock of company A was suspended for trading to receive investigation. After trading suspension, the company disclosed that it really planned a major project, but this project was still in the argumentation and consultancy stage and very uncertain, and it was hard to keep confidential, so the stock of the company should be suspended for training continuously. After one week, the stock of the company was resumed for trading through application, at the time of trading resumption, the board of directors reviewed and approved several proposals related to non-public offering, one of which was that it was agreed to conclude a framework agreement on capital increase and stock expansion between company A and other two parties. The feasibility study report for non-public offering showed that the company had concluded the framework agreement on capital increase and stock expansion with other two parties, and the agreement subject, date of signature and amount of capital increase, etc., were all specified. Once this news came to light, the stock price went up immediately. The investors believed that the company would increase the capital and expand the stock, and introduce strategic investors, reflecting the strategic investors’ acceptance of the value of the company, it was really a good thing, so the investors bought the shares of the company without hesitation.
But later, this framework agreement on capital increase was investigated by China Securities Regulatory Commission, and it was found out that the agreement didn’t exist. No framework agreement on capital increase and stock expansion was signed between company A and other two parties, and this agreement which might bring good fortune was purely created by the listed company out of nothing. It was proved that the news was false, but the shares bought by the investors were true, and the investors are still trapped at a high position. Company A was warned and imposed a fine of RMB 300 thousand Yuan by China Securities Regulatory Commission for its disclosure of false information.
To honor credibility is what required for a person to grow up, similarly, it is what required for a company to settle down and prosper. The investors shall never be fooled by any flicker made-up positive information. When facing the bull news disclosed by a listed company, the investors shall sharpen their eyes, make rational analysis, and think carefully whether the company does its business properly, whether the performance is strongly supported, and whether the investment value really exists or not in consideration of the factors such as the financial situations, operating mode, business development and industrial competition of the company. The false can be eliminated and true retained only through rational analysis, so an investor can go longer and longer on the road of value investment.
This article is excerpted from “Risk Warning and Prevention for Investors” - Cases of “Protecting Investors • Know Rules, Identify Risks - Don’t Believe All Sweet Words, Discard the False and Retain the True only through Rational Analysis” published on the official website of China Securities Regulatory Commission