Who "tripped" the "investment banking aristocracy"?

A "filing notice" has tarnished the golden signboard of CICC.

On the evening of October 11th, CICC disclosed an announcement stating that the company had received a "Notice of Filing" from the China Securities Regulatory Commission on the same day, due to the company's alleged lack of diligence in the sponsorship of the initial public offering of Si'erxin, in accordance with the "Securities Law of the People's Republic of China" and other laws and regulations, the China Securities Regulatory Commission decided to file a case against the company.

The stumbling block for CICC was an unsuccessful new stock issuance.

In August 2021, Si'erxin, engaged in upstream EDA business in the integrated circuit industry, submitted an application for an IPO on the Sci-Tech Innovation Board, with CICC as the company's sponsoring broker.

In December 2021, during an on-site inspection of Si'erxin by the CSRC, it was found that Si'erxin was suspected of inflating revenue and other illegal activities. Subsequently, Si'erxin withdrew its IPO application.

In February 2024, the CSRC imposed a fine of 4 million RMB on Si'erxin, with a total fine of 12.5 million RMB for related personnel. This case also became the first case of fraudulent issuance handled by the CSRC since the implementation of the new "Securities Law", where the issuer was investigated by the CSRC after submitting application materials but before obtaining registration.

In October 2024, regulatory focus shifted to the intermediary "gatekeeper" CICC.

The "misfortune" of Si'erxin

In August 2021, a company named Si'erxin entered the public eye. On August 24th of the same year, the Shanghai Stock Exchange accepted Si'erxin's application for an IPO on the Sci-Tech Innovation Board.

According to relevant information, the company is one of the few domestic enterprises with the capability of digital integrated circuit EDA tools. Its prototype verification solution is said to have been used by six of the world's top fifteen semiconductor companies in 2020, and seven of China's top ten integrated circuit design companies.

EDA (Electronic Design Automation) is a key basic tool for chip design manufacturers and foundry manufacturers to improve yield, positioned at the upstream end of the integrated circuit industry chain. This field plays a crucial supporting role in integrated circuits, electronic information, digital economy, and other businesses.

Further information shows that in 2020, Si'erxin ranked first in sales in the Chinese prototype verification market, making it a high-performing company in a popular field.

However, subsequent regulatory investigations revealed that Si'erxin had significantly inflated its revenue and profits in 2020.

Discovery of "clues" during on-site inspection

The "clues" were discovered during regulatory on-site inspections.

On August 24, 2021, the Shanghai Stock Exchange accepted Si'erxin's Sci-Tech Innovation Board IPO project. In December of the same year, a surprise on-site inspection by regulatory authorities took place.

On-site inspections are an important means taken by regulatory authorities to ensure the quality of issuances.

According to industry sources, the team conducting on-site inspections of IPO companies typically consists of 10 to 20 people. Led by the exchange or securities regulatory bureau, the team includes experienced professionals from regulatory departments and may also include senior accountants, lawyers, and other personnel from intermediary institutions Inspections involve not only the draft of the issuance materials but also on-site communication, with the aim of verifying the authenticity of relevant information and confirming any potential discrepancies in the financial and business materials of the issuing company.

It was during this inspection that Si'erxin was found to have clues of "inflating" revenue and profits.

On July 27, 2022, the Shanghai Stock Exchange decided to terminate the review.

Si'erxin's Violations

According to the investigation by the China Securities Regulatory Commission, Si'erxin fabricated significant false information in the securities issuance documents disclosed.

In its "Prospectus," Sections Six "Business and Technology" and Eight "Financial Accounting Information and Management Analysis" contained false financial data, with a total of RMB 15.3672 million in inflated operating income in 2020, accounting for 11.55% of that year's operating income; and a total of RMB 12.4617 million in inflated total profits, accounting for 118.48% of that year's total profits.

Specific methods included:

Firstly, inflating operating income through fictitious sales transactions (In 2020, Si'erxin inflated operating income by RMB 8.1217 million through fictitious sales transactions, corresponding to an inflated total profit of RMB 7.8278 million).

Secondly, inflating operating income by prematurely recognizing revenue (In 2020, Si'erxin inflated operating income by RMB 7.2455 million through premature revenue recognition, corresponding to an inflated total profit of RMB 4.3335 million).

Thirdly, underestimating period expenses (In 2020, Si'erxin underestimated interest expenses by RMB 0.3004 million, corresponding to an inflated total profit of RMB 0.3004 million).

Who Was Involved?

The preparation work for the IPO of a listed company typically lasts for 2 to 3 years or even longer, with the sponsoring institution overseeing the entire process of IPO preparation and playing a core role among all intermediary institutions.

The falsification of Si'erxin's listing materials naturally involves the team of the sponsoring institution, CICC.

According to Si'erxin's prospectus (filing), CICC served as the sponsoring institution.

And two sponsoring representatives (commonly known as "sponsors") signed on the prospectus, namely Zhao Shanjun and Chen Liren.

In addition, the project co-organizer Xu Fang also signed on the declaration page of the sponsoring institution (lead underwriter).

Public information shows that Zhao Shanjun served as the Deputy General Manager of the Investment Banking Department of CICC (during the time of Si'erxin's IPO project, he was a senior manager in the investment banking department), with 10 years of experience in investment banking, having completed projects such as Dongwei Semiconductor's Sci-Tech Innovation Board IPO, Xin Jieneng's Main Board IPO, Electric Energy's restructuring of the silicon-based analog semiconductor business, Yangjie Technology's refinancing, among others; other projects mainly include Huamai Technology's Main Board IPO, Zhenjiang Stock's Main Board IPO, Xinmeixing's ChiNext IPO, Suli Stock's Main Board IPO, etc. Let's take a look at Chen Liren's background: He has served as the Deputy General Manager of the Investment Banking Department of CICC, and has been responsible for or involved in projects as a sponsor representative or core project team member, including Grand Explosion's A-share IPO, Xiong Su Technology's A-share IPO, Haige Communication's non-public offering, Zhiguang Electric's non-public offering, Grand Explosion's non-public offering, Guoxing Optoelectronics' non-public offering, Dongjian Technology's A-share IPO, Xinbang Intelligent's A-share IPO, Jiufeng Energy's A-share IPO, Ruisong Technology's A-share IPO, Sanxiong Aurora's A-share IPO, and Changlong Group's private placement corporate bonds.

According to the listing sponsorship document of Si'erxin, other members of the sponsorship project team include: Wu Di, Li Geng, Li Yang, Wang Jian, Zhang Xiqing, Zhang Wen, Zhao Jilin, Lu Jiatong, Guo Yuchen.

Former "Investment Banking Aristocracy"

As a member of the "Three Central and One Hua," CICC was once known as the "investment banking aristocracy" in the industry, implying its leading position in the investment banking business.

According to the 2024 interim report, CICC's investment banking business recorded operating income of 579 million yuan in the first half of the year, with a year-on-year decrease of 70.1%.

CICC stated that this was mainly due to changes in the net gains and losses generated by the follow-up investment in securities held by the Science and Technology Innovation Board, and the net income from investment banking business fees and commissions also decreased.

It is worth mentioning that on October 11th, there were market reports that CITIC Securities and CICC had submitted the "Securities, Funds, Insurance Companies Interchange Facility (SFISF)" plan.

Currently, among the large securities firms in the industry, only CITIC Securities and CICC have obtained the first-tier trader status in the open market business of the People's Bank of China.

Actively Cooperating with Regulatory Work

Regarding this penalty, CICC has also made positive statements.

They stated: The company has received the "Filing Notice" from the China Securities Regulatory Commission regarding the Si'erxin IPO project on the 11th, and the company will actively cooperate with the relevant work of the China Securities Regulatory Commission and strictly fulfill its information disclosure obligations.

This leading brokerage further stated: The company will adhere to an investor-centric approach, continuously strengthen the quality control of the practice process, control the "gateway" to the capital market, solidify the responsibility of being a "gatekeeper," further enhance the quality of practice, and better serve the high-quality development of the capital market