Kangmei inflated its cash holdings by ¥88.7 billion — then the CSRC called it fraud

Kangmei Pharmaceutical (康美药业), listed on the Shanghai Stock Exchange, was one of China's largest pharmaceutical companies with a market capitalisation exceeding ¥47 billion in 2019. In late 2018, the CSRC opened an investigation after noticing the company was earning unusually little interest on its reported cash holdings.

On 29 April 2019, Kangmei disclosed that its 2017 annual report had overstated cash holdings by ¥29.9 billion and revenue by ¥8.9 billion. The CSRC's investigation found the fraud was far larger: revenue overstated by ¥29 billion, profits by ¥4.1 billion, and cash holdings by ¥88.7 billion. The regulator called it 'premeditated and malicious cheating of investors.' Shares fell more than 60% from the disclosure to the CSRC's final ruling.

The administrative fine was ¥600,000 — described by the South China Morning Post as a 'slap-on-the-wrist.' But the civil consequences were larger: in November 2021, the Guangzhou Intermediate People's Court ordered Kangmei to compensate investors ¥2.459 billion in China's first securities class-action lawsuit. MSCI removed the stock from its emerging markets index. GF Securities, Kangmei's IPO sponsor, was temporarily banned from sponsorship business.

The CSRC caught it because the cash earned no interest; the fine was ¥600,000, but investors won ¥2.46B in court.

The CSRC's red flag was simple: a company reporting massive cash holdings but earning almost no interest on them — the numbers did not add up, and the regulator eventually noticed

The fraud was described as 'premeditated': faked documents were used, not just aggressive accounting — this was fabrication, not interpretation

The ¥600,000 administrative fine was a fraction of the ¥4.1 billion in overstated profits, creating a perverse incentive: the expected penalty was far smaller than the expected gain from fraud

GF Securities, the IPO sponsor, failed to catch the discrepancies during due diligence; the intermediary's failure allowed the fraud to persist through the listing process

A company reporting huge cash but earning no interest on it is a company whose cash does not exist — the simplest analytical check caught what auditors and sponsors missed.

The Kangmei ruling triggered a wave of resignations among independent directors at Chinese listed companies, as five Kangmei directors were held personally liable for 5–10% of the ¥2.46 billion judgment. The case became a landmark in Chinese securities law and accelerated the adoption of class-action litigation in China's capital markets.