Shanghai-listed Yinguangxia sued by over 1,000 locals for false annual reports

People line up to purchase stocks in China's first open-ended fund, the Hua'an Fund, when it was launched in September 2001.

AFTER being fined 600,000 yuan ($72,551) by the China Security Regulatory Committee (CSRC) on May 14, the Shanghai-listed Yinguangxia has been sued by over 1,000 Shanghai stockholders, www.eastday.com reported.

The group of plaintiffs gathered in Shanghai Jintiancheng Lawyers' Office and discussed with lawyers the details of the case on May 19.

According to the lawyer Yan Yiming, who accepted the case, there are over 1,000 local stockholders entrusting him to sue Yinguangxia. The total compensation is expected to be over 40 million yuan ($4.8 million), he said.

The reason for the lawsuit is said to be that Yinguangxia exaggerated their profits and provided false annual reports over the past three years, which misled investors.

Taken in by this false information, many investors bought the stock at the high price of over 35 yuan ($4.2). But now the stock is facing a trading halt.

Of the investors, the minimum loss was 10,000 yuan ($1,210) and the highest 20 million yuan ($2.4 million).

As the CSRC has released punishment against Yinguangxia, according to the new law, investors are now allowed to sue companies who release false financial information to attain a leading position in the market.

The lawyer Yan said the relationship between the company's release of false information and investor's huge losses was very clear compared to other similar cases.

If the investors win the lawsuit, Yinguangxia has the ability to provide compensation according to its large scale of fixed capital, Yan said.

Because of the new law, the case should be dealt in Yinchuan of Ningxia Hui Autonomous Region, which is the base of the defendant. But the local court is unwilling to accept a group lawsuit.

So Yan estimated that the over 1,000 victims will take legal proceedings individually in the end.

According to the punishment note from CSRC on May 14, the committee concluded that the company boosted their sales for 1.05 billion yuan ($126.96 million) more than the real figure from 1998 to 2001, which lead to a false profit of 771.57 million yuan ($93.22 million) more than the reality.

Actually, the company was in a consecutive deficit from 1999 to the middle of 2001. (Star News)