The China Securities Regulatory Commission (CSRC) has penalized Yuandao Communication Co., Ltd. for inflating its revenue during the years leading up to its 2022 IPO. The regulator found that the company used fake work-volume confirmation forms to boost its reported income.
The escalating deception from 2019 to 2021
The scale of the revenue inflation grew significantly each year during the three-year period preceding the company's public debut. according to the CSRC, Yuandao Communication inflated its revenue by RMB 65,902,640.59 in 2019, RMB 160,688,291.80 in 2020, and a staggering RMB 263,632,076.14 in 2021. These figures represented a growing disttortion of the company's actual performance, rising from 8.75% of reported revenue in 2019 to 16.23% by 2021.
To achieve these numbers, employees in the business and finance departments fabricated work-volume confirmation forms to create the appearance of higher activity. This method allowed the firm to artificially boost its operating income in its listing documents, presenting a much healthier financial profile to potential investors than actually existed. The regulator noted that these fabricated documents were used to adjust financial data systematically over several years.
Market bans for Li Jin and Cao Yalei
Individual accountability has been a central component of the CSRC's enforcement action against Yuandao Communication. Former chairman Li Jin received a RMB 2.5 million fine and a five-year ban from the securities market for failing in his duty of diligence and supervision. as the chairman, Li was responsible for signing the prospectus and the 2022 annual report, making his oversight failure a primary focus for regulators.
The penalties for the company's former chief financial officer, Cao Yalei, were even more severe in terms of direct financial impact.. Cao was ordered to pay RMB 4 million and received a four-year market ban after the regulator determined she not only knew of the conduct but actively participated in arranging the revenue inflation. Under the terms of these bans, neither executive can hold director, supervisor, or senior management roles at any securities issuer, nor can they work in the securities business elsewhere for the duration of their respective penalties.
A shadow over the RMB 1 .17 billion Shenzhen listing
This regulatory crackdown follows a successful but now tainted 2022 IPO on the Shenzhen Stock Exchange. Yuandao Communication raised approximately RMB 1,169,184,000 in proceeds during its listing on July 8, 2022... The massive scale of the capital raise makes the discovery of multi-year revenue manipulation particularly damaging to investor confidence in the Shenzhen market.
The CSRC's decision emphasizes the role of the issuer as the primary gatekeeper of offering documents. By imposing a corporate fine of nearly RMB 239 million, the regulator is sending a clear signal to other companies preparing for public listings. This enforcement action underscores the heightened scrutiny on the accuracy of financial disclosures during the high-stakes period of an initial public offering.
The dispute over invoicing dates and intent
A central point of contention in this case involves the technicalities of revenue recognition. Yuandao Communication argued that the CSRC wrongly treated timing differences as fictitious revenue by using invoicing dates as the recognition point. the company maintained that its revenue recognition followed standard accounting practices and that there was no organized intent to deceive.
However, the regulator rejected this defense, stating that the evidence showed a deliberate effort to adjust financial data through fabricated forms. While the technical accounting debate continues, several practical questions remain unanswered. the CSRC has ordered the company to correct its false 2022 annual report, but it has not yet specified a deadline for these restatements. Furthermore, it remains to be seen how the company will reconcile the massive discrepancies in its 2019-2021 figures in its upcoming financial filings.
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