Insist on "pursuing the primary offenders" and "punishing the accomplices," and the CSRC will strictly investigate and punish Tianfeng Securities for illegal and violations.

According to the announcement released by the China Securities Regulatory Commission on February 13, the CSRC recently issued an administrative penalty and market ban notice to Tianfeng Securities Co., Ltd. (hereinafter referred to as “Tianfeng Securities”) regarding its alleged illegal financing and information disclosure violations in providing services to Wuhan Contemporary Technology Industry Group Co., Ltd. (hereinafter referred to as “Contemporary Group”).

Next, the CSRC will continue to uphold the principles of “pursuing the primary culprit” and “cracking down on accomplices,” strictly punishing such illegal and irregular behaviors. At the same time, it will urge the securities industry to learn from the case, deeply draw lessons, comprehensively strengthen corporate governance and compliance risk management, continuously promote industry culture construction, and earnestly adhere to the principles of “not crossing the bottom line, not pursuing profit at all costs, not seeking quick success, not abandoning reality for virtuality, and not acting recklessly.” The industry will uphold honesty and trustworthiness, profit through righteousness, operate prudently and steadily, uphold integrity and innovation, and operate in accordance with laws and regulations.

According to investigations, from 2020 to 2022, Tianfeng Securities illegally provided financing to the former largest shareholder, Contemporary Group, and failed to disclose related-party transactions with Contemporary Group as required. Contemporary Group and Tianfeng Securities jointly engaged in related illegal activities, severely violating securities laws and regulations.

The Hubei Securities Regulatory Bureau plans to impose a maximum fine of 25 million yuan on Tianfeng Securities and Contemporary Group, and a total fine of 34.8 million yuan on nine responsible personnel. It will also impose lifelong market bans on Ai Luming, the actual controller of Contemporary Group; Yu Lei, then Chairman of Tianfeng Securities; and Xu Xin, then Vice President and Chief Financial Officer. For illegal and irregular behaviors related to business operations and internal control compliance by Tianfeng Securities and relevant personnel, the Hubei CSRC intends to take administrative regulatory measures such as suspending related business activities, ordering responsible personnel to be disciplined, and conducting regulatory interviews. Additionally, the Shanghai Stock Exchange plans to impose disciplinary sanctions on Tianfeng Securities, Contemporary Group, and relevant responsible personnel in accordance with regulations.

It is reported that, earlier, to effectively safeguard investors’ legitimate rights and interests, securities regulatory authorities have continuously enhanced enforcement efficiency. Hubei Province actively took action, transferring the equity held by Contemporary Group in Tianfeng Securities to relevant enterprises in Hubei Province, ensuring the operation of Tianfeng Securities. The recent penalties will help Tianfeng Securities further solidify corporate governance, improve compliance and risk management levels, and promote steady operation.

The CSRC states that corporate governance is the foundation of high-quality development for listed companies, and compliance and risk control are the lifelines of securities firms. From the cases of violations by Tianfeng Securities, on one hand, major shareholders abuse their rights, illegally utilize securities firms for financing, and erode the interests of securities firms; on the other hand, securities firms breach compliance bottom lines and cooperate with illegal and irregular activities of shareholders. These behaviors are severe and must be punished strictly according to law.

Professor Tian Lihui, a finance professor at Nankai University, told Shanghai Securities News that the serious investigation and punishment of Tianfeng Securities demonstrate a “zero tolerance” regulatory attitude, which has strong warning significance. He believes that this penalty not only achieves a “severe and painful” effect through maximum fines and lifelong bans but also adheres to the principle of “pursuing the primary culprit” and “cracking down on accomplices,” punishing both the abusing major shareholders and the intermediary institutions that have crossed the bottom line, thereby cutting off the利益输送链条.

Regarding future regulation of intermediary agencies, Tian Lihui suggests: first, strengthening their independence through institutional measures to prevent manipulation by major shareholders; second, utilizing big data to achieve transparent supervision and detect covert violations from the source; and third, further improving civil compensation and criminal accountability to establish a three-dimensional punishment system, ensuring that the cost of violations truly covers the entire chain.

(Source: Shanghai Securities Journal)