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.