Reasonable to punish firm for scallops that fled
The China Securities Regulatory Commission recently penalized Zhangzidao, imposing a 600,000 yuan ($84,815) fine on the company, a 30,000-300,000 yuan-fine on 15 responsible personnel and five-year to lifetime ban on four of its personnel from entering markets.
The Zhangzidao Group has become a laughing stock on the Chinese stock market for coming up with innovative excuses such as "the scallops fled" or "the scallops died" to explain "financial losses". Such absurd claims hurt investor confidence while the regulator had no way to prove the company committed irregularities.
The CSRC launched a probe into the company's affairs in February 2018 and punished the company, directors concerned and supervisors in July 2019 for alleged financial fraud and irregularities in its disclosure about scallops.
The company said it was punished on the basis of hypothetical assumptions. To gather further evidence, the regulator made use of the Beidou navigation and positioning system to track the navigation trajectories of its fishing boats and accurately calculate the company's real fishing area.
The incident is an eye-opener. A number of enterprises in the agricultural, forestry, animal husbandry and fisheries sectors that are listed on the stock market are committing frauds that are difficult to prove in the absence of evidence. However, the investigation against Zhangzidao using big data, cloud computing and satellite monitoring technologies will act as a real deterrent against frauds.
Only by establishing effective regulatory means and ensuring the authenticity of information disclosure can investors receive correct investment signals, helping improve the effectiveness of capital allocation in the financial market and consolidating the cornerstone for sound operation of the securities market.
The key lies in severely punishing those committing frauds or disclosing false information. A market entry ban and criminal responsibility should also be considered. Of course, measures to protect investors need to be strengthened, given that it is difficult to recover the losses investors suffer because of frauds committed by enterprises.
In order to prevent listed companies from exploiting institutional loopholes, the authorities should put in place more specific rules and increase their operability and enforceability, so as to prevent fraudsters from using institutional loopholes to escape penalties.