Dandong Xindai's Over IPO Fraud Research Assignment

Dandong Xindai's Over Ipo Fraud
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The China's securities market was established in 1997; however, since then there have been various cases of financial fraud where companies in the stock exchange companies have tried to cheat investors and controllers. For example in 2001, Cuangxia Industry Corporation., came up with an inflated amount o 178 million Yuan complete profits, all these were a case of financial fraud when in 1999 there was a record increase of 567 million Yuan in profits. In the year 2006 also, Guangdong Kelon Electric Holdings Corporation reported an addition amount of 1200 million Yuan in operating income. There was also an increase of 120 million Yuan pure profits through falsifying surpluses in accounts CITATION Ter05 \l 1033 (Warfield, et al., 2005). In 2013, the Wanfu Biotech Agricultural Development cooperation reported an upsurge in profits from2008 to the year 2012 through forgery of accounting excesses. In this regard, financial fraud will not only cause the distortion of financial information with regard to the listed companies, but it will also lead to investors making a poor judgment and poor decisions on the basis of information the read from the securities exchange. In the end, investors will have to suffer losses in investment CITATION Gon06 \l 1033 (Chen, et al., 2006). This will also provide an opportunity for bad money to circulate while good money is driven out.
Other implications for this is the reverse market allocation. In addition, this causes serious legal and economic consequences for the responsible agencies. It thus becomes very necessary and important to conduct a deeper analysis on main inducements among other methods to monitor and curb financial cheating with regard to listed companies in China’s securities exchange CITATION HAN15 \l 1033 (Ndofor, et al., 2015). This report discusses implications of cheating by looking at the story of Dandong Xindai’s Electronic which was delisted in 2016 after it was found to practice Initial Public offer fraud.
Consideration
Dandong Xintai is a Chinese based Electric company which specializes in the manufacturing and selling of power equipment in China. The company products include magnetic control, magnetic valve controllable, dry type air core series, automatic compensation stage series, oil-immersed series, dry type shunt, suppression coils and neutral grounding reactors. This shows that the company is mainly engaged in the manufacturing of power transmission equipment and power compensation devices like grid performance optimization equipment, sales, production, electricity systems, power supply and distribution. In this manner, the company has been in the forefront when it comes to the provision of technology solutions and power equipment CITATION GCh06 \l 1033 (Chen, et al., 2006). With the growing competition, the company has been facing harsh market economies which have seen it perform low under the harsh economic conditions of the international and domestic markets for a systematic industry analysis of the industry market and demand for judgments.
The company was also able to develop itself into stable economic domestic markets through various international expansions. With regard to the events of 2016, the company faced a severe economic downfall due to the conditions in the national and international markets after a systematic analysis of the performance of the industry and the demand for market judgments. In July 2016, the Chinese top securities investigators initiated a security procedure that led to the delisting of Dandong Xindai which is an electric equipment manufacturer. This was done after the investigators found the electric equipment manufacturer guilty of fabricating financial information for an initial public offering CITATION LZh10 \l 1033 (Zhang, et al., 2010). This qualified the company as the first Electric Company to be delisted from the exchange of Initial Public offering fraud after the securities regulators revealed more strict delisting rules in 2014. This was meant to regain the lost investors’ confidence and eliminate mal-practicing companies from the list. To this effect, the underwriter Securities Co. Ltd. was ordered to pay 550 million Yuan which is equivalent to $82 million to cover losses covered by the investors and an additional57.3 million Yuan as fine CITATION LHH16 \l 1033 (Hass, et al., 2016).
Illegal adjustments
The above case happened with in June 2016, a statement was made of Dandong Xintai Electric corporation claiming that the very company was going to be receiving the punishment due to financial fraud. In this punishment included warning and a fine of 8.92millionYan which was directly imposed to the company’s Chairman Wen, there was also a600,000 Yuan find that was imposed to the company’s chief and unscrupulous accountant Liu and a sanction against Liu and Wen from ever accessing the Chinese stock market. In the same regard, the company was also delisted from the Chinese stock exchange due to various reasons as discussed below CITATION Xhi16 \l 1033 (Xhinua, 2016).
Illegal adjustments
Illegal adjustment happens when it is realized that all the receivable accounts are too large, in this line, Wen was approached by Liu who suggested that by reducing the receivable accounts through external borrowing would be healthy for the company at the end of the financial year. To do this, the company used three unique methods in accompanying the adjustment of the accounts receivable CITATION LZh10 \l...