Accounting Puzzle -- Research Findings on Financial Fraud from the Financial Fraud Research Project of Shanghai National College of Finance

Author: Ma Xianming
Publisher: Dalian Publishing House
Publish Date: 2005-05-01
Features: From 2001 to 2005, the indices of the Shanghai Stock Exchange and the Shenzhen Stock Exchange have plummeted for five consecutive years! Every investor in the securities market has bled! They bled from wounds all over their bodies, bled from utter despair! Why? In the eyes of overseas investment experts, the risk of investing in the Chinese capital market is ranked as follows: mutual funds and exchange-traded funds, American depositary receipts, H-shares and red-chip stocks, hedge funds, B-shares, and A-shares, with A-shares being the riskiest. And it is this A-share market that has caused investors to bleed and weep. The equity split issue of listed companies, the problem of market integrity, and the failure to effectively protect investors' interests—these intertwined contradictions have left people seeing no hope for this market. Indeed, a market with no guarantee of interests, a market that has lost its principles of integrity, and a market where retail investors are always the ones left holding the bag—such a market is hopeless and drives people to despair! We refuse to accept such a market existing! Since 2000, part of our work has been to unravel the financial mysteries of listed companies and warn about accounting landmines. Over four years, we have accumulated reports from dozens of listed companies, large and small. Most of the warnings in these reports came true within a short time, unintentionally helping many investors avoid stepping on landmines, but the hardships involved are beyond what outsiders can imagine. Take Jinzhou Port (600180) as an example. Through public information, we identified major accounting fraud in Jinzhou Port's financial statements and published articles on relevant financial and economic online media. Not only did we not receive a reasonable explanation from the company, but we were also mocked and attacked. Fortunately, two days later, the Shanghai Stock Exchange urgently required Jinzhou Port to suspend trading and disclose its financial information truthfully. This led to Jinzhou Port replacing its chairman, submitting two annual reports, disclosing the fraud, and seeing its stock price fall. All of this reminded us of a statement by former U.S. Securities and Exchange Commission Chairman Arthur Levitt: "I spent 28 years on Wall Street and am very familiar with its culture. In fact, Wall Street has two conflicting ideologies. One is centered on professional ethics, integrity, and broker spirit, and in this cultural atmosphere, there can be no retail investors for the market to operate effectively. The other culture is driven by conflicts between profit, fraud, and related-party transactions, which puts Wall Street's short-term interests above those of investors. Unfortunately, compared to these two ideologies, the latter often overshadows the beneficiaries and dominates."