Claims Surface That Chinese Conglomerate Fosun’s Executives Potentially Committed IPO Fraud

A man walks past the Fosun International Center in Beijing on Sept. 23, 2019, the local headquarters of the Shanghai-based Fosun Group. Wang Zhao/AFP via Getty Images

The chief financial officer (CFO) of a Hong Kong-listed Chinese company, Babytree, has exposed his company’s alleged fraudulent IPO (initial public offering), and his alleged co-conspirator is an NYSE-listed Hong Kong financial institution. The firm has helped list dozens of Chinese companies in Hong Kong and U.S. stock exchanges.

On April 11, Babytree Group’s CFO Xu Chong alleged that several Fosun subsidiary companies, including Babytree, had faked their IPOs. Babytree, a Chinese mother-and-baby e-commerce and community platform, was listed on the Stock Exchange of Hong Kong (HKEX) on Nov. 27, 2018.

Xu alleged that during the IPO process, several key directors resolved to expand the size of the IPO due to a lack of subscriptions for the company’s financing orders. The company agreed with an investment firm, AMTD, to subscribe for $70 million in IPO orders and promised to “return” the entire $70 million to AMTD on the day of the IPO. On the day Xu blew the whistle on the story, the board of directors of Babytree announced that he would be terminated as the company’s CFO.

U.S. economist Davy Jun Huang told The Epoch Times on April 15 that, essentially, what those companies allegedly did was pay for a third party to buy their own stocks and shares to mislead the market into believing that it had investment value or to meet the listing requirements. In other words, companies like Babytree had allegedly faked the size of their IPOs. This type of operation has been a mature practice for nearly 20 years and is “commonplace” in the financial and accounting fields.

AMTD Helps List Dozens of Companies

AMTD Group was founded by Hong Kong’s wealthiest billionaire Sir Ka-shing Li. After introducing a new shareholder, Morgan Stanley Private Equity Asia (MSPE), the company’s day-to-day management transferred to Hong Kong-based businessman Calvin Choi, who controls AMTD Group now. In August 2019, AMTD Group was listed on the New York Stock Exchange.

People pass the front of the New York Stock Exchange in New York on March 21, 2023. Peter Morgan/AP Photo

Since 2016, AMTD Group has helped various Chinese tech companies and banks to list on U.S. and Hong Kong stock markets. However, AMTD’s companies have been rumored to have poor performance or executive corruption. For example, on Dec. 30, 2019, after listing at an issue price of HK$2.48 per share, Guizhou Bank broke during the day; its market capitalization evaporated by nearly HK$1.9 billion in four days after listing.

AMTD Group also completed the H-Share HK IPO for Jiangxi Bank in 2018. In March 2022, Chen Xiaoming, former Chinese Communist Party (CCP) Secretary and Chairman of the Board of Directors of the Bank of Jiangxi was investigated for alleged law violations. In December 2022, Chen was accused of misusing state-owned financial assets for personal gain, using financial loan approval authority to make illicit gains, and receiving large bribes.

Huang said: “If Xu Chong’s information were true, this would be a blatant financial fraud or even a carefully planned scam.”

Another Company Boss Sent to Prison

Although Xu Chong’s allegations are not yet fully proven, his exposure of another company that conspired with Babytree to commit fraud, whose boss was arrested for fraud and other crimes back in 2019, adds credibility to Xu Chong’s allegations. This company was Guangdong CSM Venture Investment Management Co., and Xu alleged that this company also participated in helping Babytree to fake its IPO.

Zhang Wei, the founder of Guangdong CSM, was arrested on April 10, 2019, on charges of gang-related crimes, extortion, and online fraud. On Nov. 26, 2021, Zhang was sentenced to life imprisonment for 11 charges, including organizing a crime ring and illegally removing public funds.

Huang believes that Zhang Wei’s financial platform was conducting illegal fundraising, financial lending, and financial fraud in the name of wealth management. If Babytree was involved as a symbolic investor to help Guangdong CSM mislead the public, the possibility of financial crimes would be very high.

Counterfeiting is Common

For years, the CCP has ordered Chinese companies not to turn over their original financial certificates to U.S. regulators, creating a convenient environment for them to commit fraud and making China’s listed companies notorious for doing as such.

In June 2013, the U.S. Securities and Exchange Commission (SEC) charged China Media Express, which operates an advertising network on China’s intercity and airport express trains, with falsely reporting its operations, financials, and profits. In addition to grossly inflating its cash assets, the company falsely claimed in public filings and press releases that two multinational companies were its advertisers. That was not the case.

In September 2014, the SEC charged AgFeed, a Chinese fertilizer company, with falsely reporting revenue from its China operations from 2008 through June 30, 2011, which inflated the company’s publicly reported revenue by approximately $239 million. Company executives used various methods to inflate revenue, including using false invoices for sales and “selling” non-existent hogs.

In December 2020, the SEC charged Chinese coffee chain Luckin Coffee with knowingly fabricating more than $300 million in retail sales from April 2019 to January 2020 through three separate procurement programs that used business partners to create false sales transactions.

The SEC imposed a $180 million fine on Luckin after certain Luckin employees attempted to conceal the fraud by inflating company expenses by more than $190 million, creating a false operations database, and altering accounting and banking records to reflect falsified sales.

A cup of coffee is poured during Luckin Coffee's IPO at the Nasdaq Market site in New York on May 17, 2019. Brendan McDermid/Reuters

In December 2020, the U.S. Congress passed the Holding Foreign Companies Accountable Act, which the SEC used as a basis to force China to agree in August 2022 to allow the U.S. Public Company Accounting Oversight Board (PCAOB) to conduct a comprehensive review of the audit transcripts of Chinese companies listed in the United States under U.S. standards.

China’s Financial Markets a Hotbed for Fraud

Huang said: “The practice of falsifying information in order to go public has been going on for a long time, and Western countries have experienced a very long battle against it in its financial markets. Now, China concepts stock and the Chinese financial markets are being the worst hit.”

In China, the financial markets function in a way that can make people rich overnight and is where the powerful elites in the country seek high-risk and high-return investments. It is also where the most serious falsifications occur, and the level of supervision has not been able to keep up with the falsification. In addition, the amount of transactions is massive, Huang said.

The CCP’s propaganda is tightly controlled and will always defend the country’s financial markets. The regime would refuse to admit that its markets are a hotbed for fraud. Civilians who invest in fraudulent companies often suffer massive losses and are never compensated.

Huang also suggested that the richest individuals in China in the past 20 years were all making money through IPOs, and huge amounts of wealth have been accumulated at the expense of the common people in China who invested in stocks seeking to make a profit. Ultimately, only the wealthy CCP-affiliated elites are profiting in China’s financial markets.