China's real estate giant Evergrande and its founder, Hui Ka Yan, are accused of inflating revenues by $78 billion over two years before the company defaulted on its debt.
China's Evergrande and Its Founder Accused of $78 Billion Fraud
According to BBC, the China Securities Regulatory Commission (CSRC) has fined the company's mainland business, Hengda Real Estate, with $583.5 million.
Company filings to the Shenzhen and Shanghai stock exchanges Monday showed that Hui was also fined $6.5 million and could be banned from China's financial markets.
Hui, who was formerly the wealthiest man in China, was accused by the CSRC of ordering employees to "falsely inflate" Hengda's 2019 and 2020 annual results.
Bloomberg, citing the country's top securities regulator, reported that the developer's onshore unit, Hengda Real Estate Group, increased revenue by recognizing sales in advance in the two years through 2020, which led to its default.
According to the regulator, Hengda fabricated 214 billion yuan ($30 billion) in sales for 2019, which accounted for 50% of the onshore unit's total revenue that year. The CSRC added that another 350 billion yuan ($48.6 billion) in sales for 2020, accounting for 79% of the revenue, were also falsified.
The regulator noted that Hui, as the supervisor in charge, used "egregious" means, and Hengda also utilized these inflated amounts in marketing to issue a combined 20.8 billion yuan in bonds.
Former Executive China's Real Estate Giant Evergrande Also Penalized
In addition to the penalties levied on Hengda and Hui Ka Yan, the CSRC punished six other executives, including Xia Haijun, the former vice chairman and CEO of Evergrande, and former chief financial officer Pan Darong, with fines and market bans for being "directly responsible."
This alleged fraud, amounting to a total of 564.1 billion yuan ($78 billion), is reportedly among the largest-ever financial fraud lawsuits in mainland China's securities markets. In January, a Hong Kong court ordered Evergrande to liquidate. With over $300 billion in debt, Evergrande has become a symbol of China's real estate catastrophe.
Evergrande has designated liquidators to examine the company's overall financial status and determine possible reorganization plans. To pay its debts, it may be necessary to sell assets or seize them altogether.
However, many people in China have paid for houses but are still waiting for them to be built, so the government would not want to see construction stop on real estate complexes. Since the real estate industry makes up about one-third of the world's second-largest economy, issues in this area have far-reaching consequences in China.
Since 2021, when government regulations limited the amount large real estate developers could borrow, the sector has been under severe financial pressure. Since then, many big real estate companies have gone bankrupt.
According to official statistics released Monday, Chinese property investment dropped 9% year-over-year in January and February. New construction starts also fell by 30%, the worst dip in over a year.
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