In an unprecedented move that has sent shockwaves through the financial world, Chinese regulators have leveled serious accusations against Evergrande, once a titan in the property development sector. The China Securities Regulatory Commission (CSRC) has accused the beleaguered company and its founder of inflating revenues by a staggering $78 billion, marking this as the largest financial fraud case in the history of mainland China’s securities markets.
The CSRC’s findings come after an exhaustive eight-month investigation, culminating in a hefty penalty of 4.175 billion yuan ($580 million) against Hengda Real Estate, Evergrande’s main unit in China. This penalty was disclosed in a filing to the Shenzhen Stock Exchange. Xu Jiayin, the founder and chairman of Evergrande Group, has been fined 47 million yuan ($6.5 million) for the overstatement and other alleged violations. Once celebrated as China’s richest man, Xu now faces a lifetime ban from the securities markets.
The scale of the alleged fraud is truly colossal. The CSRC claims that Hengda Real Estate fabricated 214 billion yuan ($30 billion) in sales for 2019, which represented half of the company’s revenue for that year. The situation in 2020 was even more dire, with 350 billion yuan ($48.6 billion) in sales—accounting for 78% of the year’s revenue—also being falsified. These manipulations led to an inflation of net profits by 63% in 2019 and an astonishing 87% in 2020.
The ramifications of these findings are far-reaching. Evergrande’s debt restructuring talks with overseas bondholders were thrown into disarray last fall when the company was unable to issue new notes. Subsequently, Xu Jiayin was detained by Chinese authorities under suspicion of ‘crimes,’ and a Hong Kong court has since ordered the liquidation of Evergrande in January 2024.
The CSRC’s report details several violations by Hengda, including the inflation of sales in financial reports, the use of these falsified figures to sell bonds, and a failure to disclose relevant information as required by regulations. In addition to the penalties imposed on Hengda and Xu, six other executives have been fined for being ‘directly responsible’ for the fraud.
Xia Haijun, the former vice chairman and CEO of Evergrande Group, joins Xu Jiayin in receiving a lifetime ban from the securities markets. The CSRC’s statement was unequivocal: ‘Xu Jiayin had made decisions, organized, and implemented the financial fraud … Xia Haijun had organized, arranged and prepared the falsified financial reports… their means were really bad and the circumstances were grave.’
This case is not just about the fall of a real estate giant; it is a stark reminder of the potential for malfeasance in the corporate world and the importance of regulatory oversight. The CSRC’s actions against Evergrande and its executives may also serve as a cautionary tale for other companies in the midst of China’s ongoing property crisis.As the dust settles on this monumental case, the financial community will be watching closely to see how this impacts the broader Chinese economy and what measures will be taken to prevent such occurrences in the future. The Evergrande saga is far from over, and its implications will likely reverberate for years to come.
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Evergrande: China accuses troubled property developer of committing financial fraud in $78 billon case
