Businessman Sentenced to Life for Defrauding Xinjiang Rancher
A businessman behind a 2.4 billion yuan ($ 372 million) deal to help a cattle rancher in Xinjiang avoid deregistration four years ago has been sentenced to prison in life for contractual fraud.
The case concerned a 2017 restructuring agreement between Xinjiang Tianshan Animal Husbandry Bio-Engineering Co. Ltd. and Guangdong Elephant Advertising Co. Ltd. Tianshan Animal Husbandry, a Shenzhen-listed company that develops cattle breeding and genetic improvements, had reported losses for two consecutive years and was at risk of being banned from the stock market. To avoid this, the company agreed to acquire Elephant Advertising, marketed by ChiNext, for shares and cash.
That deal collapsed a year later when Tianshan Animal Husbandry alleged that Chen Dehong, majority shareholder of Elephant Advertising, was suspected of contract fraud, embezzlement, illegal warranty and other illegal actions.
After Tianshan Animal reported the matter to the police, Chen and his nephew, Elephant Board secretary Chen Wanke, were arrested in February 2019. A Xinjiang court recently ruled that Elephant Advertising and Chen Dehong had engaged in contract fraud by falsifying facts, hiding the truth and defrauding a huge amount of Tianshan Animal Husbandry’s assets with the aim of illegally possessing them, Tianshan Animal Husbandry said in a statement on Monday.
As part of the 2017 deal, Tianshan Animal Husbandry agreed to pay Chen 577 million yuan in cash and 1.8 billion yuan in shares. The cash payment was never made, but the share party completed the registration of the shares, the court said.
Elephant Advertising was fined 10 million yuan for contract fraud. Chen Wanke was sentenced to 15 years in prison and fined 3 million yuan, according to the court ruling. Chen Dehong appealed his life sentence to the Xinjiang Higher People’s Court, people close to him said.
The transaction was controversial because Tianshan Animal Husbandry, who was losing money, was trying to acquire a much larger business in an independent business to avoid delisting. In April, China’s Tianshan Securities Regulatory Commission fined Animal Husbandry 300,000 yuan for restructuring-related information disclosure violations. The regulator said the company did not disclose Elephant Advertising’s financial fraud in its statements.
Prior to the deal, Tianshan Animal Husbandry owed around 1.14 billion yuan to companies affiliated with Zhongzhi Enterprise Group, an investment holding conglomerate. Under a separate and secret deal, Chen Dehong paid 1.5 billion yuan to Li Gang, who owned 35% of Tianshan Animal Husbandry, according to people familiar with the deal. Of this amount, 1.2 billion yuan was to help Tianshan Animal Husbandry repay Zhongzhi’s debts; in exchange, Chen Dehong obtained 22.4% of the shares of Tianshan Animal Husbandry. The remaining 300 million yuan was to repay part of the company’s 577 million yuan cash payment in connection with the acquisition of Elephant Advertising.
During merger talks, Chen Dehong hid facts, including inflated earnings at Elephant Advertising, prosecutors found. He also provided false financial data and falsified important contracts with intermediaries including Caitong Securities, Grandall Law Firm and Dahua Certified Public Accountants Co. Ltd.
Now Tianshan Animal Husbandry is at risk of being deregistered again. According to the rules revised by the Shenzhen Stock Exchange in December 2020, if Tianshan’s main business continues to lose money and its income is less than 100 million yuan in 2021, it will be subject to a warning. risk of radiation. The company reported a net loss of 43 million yuan in the first half of this year.
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