Massive Financial Scandal Unveiled: Evergrande Accused of Inflating Revenues by $78 Billion
In a shocking revelation, Chinese regulators have implicated Evergrande and its founder in a staggering $78 billion revenue inflation scandal, marking a significant milestone in the nation's financial history. This accusation has thrust the insolvent property giant into the center of a high-profile fraud investigation.
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Chinese regulators have accused Evergrande and its founder of inflating revenues by $78 billion, making it the center of the largest financial fraud case in the country.
The China Securities Regulatory Commission (CSRC) imposed a penalty of 4.175 billion yuan ($580 million) on Hengda Real Estate, the main Chinese unit of the Evergrande Group, as disclosed in filings to the Shenzhen Stock Exchange on Monday.
Xu Jiayin, the founder and chairman of Evergrande Group, received a fine of 47 million yuan ($6.5 million) for overstating financials and other alleged violations. Xu, who was once China's richest man, has also been banned for life from participating in the securities markets.
After an eight-month-long investigation by the CSRC, the findings were finally revealed.
In September, a company statement mentioned that the investigation had caused a delay in Evergrande's debt restructuring talks with its overseas bondholders. This was because the company was unable to issue new notes.
Days later, Evergrande announced that its chairman had been taken into custody by Chinese authorities on suspicion of committing "crimes." In January 2024, a Hong Kong court issued a ruling for Evergrande to undergo liquidation.
In the recent filing on Monday, Hengda revealed that the China Securities Regulatory Commission (CSRC) had accused the company of multiple violations. These violations included exaggerating sales figures in their financial reports, using these potentially falsified numbers to market bonds, and neglecting to disclose necessary information as mandated.
A man walks past a No Entry traffic sign near the headquarters of China Evergrande Group in Shenzhen, Guangdong province, China September 26, 2021.
A man walks past a No Entry traffic sign near the headquarters of China Evergrande Group in Shenzhen, Guangdong province, China September 26, 2021.
Aly Song/Reuters
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The regulator revealed that Hengda had inflated its sales numbers by 214 billion yuan ($30 billion) in 2019, making up half of its revenue that year. Additionally, another 350 billion yuan ($48.6 billion) in sales for 2020, which represented 78% of its revenue, were also found to be falsely reported.
The company reported that its net profit for 2019 was artificially increased by 63% and for 2020 by 87%.
This alleged fraud, totaling 564.1 billion yuan ($78 billion) over two years, is the biggest financial fraud case in mainland China's securities markets, according to regulatory statements and state media reports.
In addition to the penalties imposed on Hengda and Xu, six other executives were fined by the CSRC for being “directly responsible.” Along with Xu, Xia Haijun, the former vice chairman and CEO of Evergrande Group, was also banned from the nation’s securities markets for life.
The regulator stated that Xu Jiayin had planned, executed, and carried out financial fraud. Xia Haijun had also been involved in organizing, preparing, and creating falsified financial reports. The regulator emphasized that their actions were unethical and the situation was serious.
Editor's P/S:
The massive financial fraud case involving Evergrande has exposed the rampant corruption and mismanagement within China's real estate sector. The revelations of inflated revenues and falsified financial reports are a stark reminder of the risks associated with investing in a market where regulatory oversight is often lax. The unprecedented fines imposed on Evergrande and its executives are a clear indication of the government's determination to crack down on such fraudulent practices. However, it remains to be seen whether the regulatory measures will be effective in restoring confidence in the Chinese economy and preventing similar scandals in the future.
The case has also raised concerns about the stability of China's financial system. Evergrande, once one of the largest real estate developers in the world, is now facing massive debts and a liquidity crisis. The company's potential collapse could have a ripple effect on the entire financial sector, as banks and other creditors are exposed to its liabilities. The government is working to manage the situation and prevent a systemic crisis, but the outcome remains uncertain. to ensure the integrity of China's financial markets and protect the interests of investors.
