Chinese regulators have accused Evergrande and its founder of inflating revenue by $78 billion, putting the insolvent property developer at the centre of the biggest financial fraud case ever seen in the country.
The China Securities Regulatory Commission (CSRC) has imposed a fine of 4.175 billion yuan ($580 million) on Hengda Real Estate, the group’s main Chinese unit, the company said in documents filed with the Shenzhen Stock Exchange on Monday.
Xu Jiayin, founder and chairman of Evergrande Group, was fined 47 million yuan ($6.5 million) for inflating revenue and other alleged violations. He was once China’s richest man, and has now been banned for life from the stock markets.
The findings were revealed after an eight-month investigation by the CSRC.
The investigation previously revealed Evergrande’s debt restructuring talks with its foreign bondholders in the fall because the company was unable to issue new notes, according to a company statement issued in September.
Days later, Evergrande said its chairman was detained by Chinese authorities on suspicion of “crimes.” In January 2024, a Hong Kong court ordered Evergrande to be liquidated.
In Monday’s filing, Hengda said the CRVS accused the company of several violations, including inflating sales in its financial reports, relying on these allegedly falsified figures to sell bonds and failing to disclose relevant information as required.
The regulator said Hengda achieved 214 billion yuan ($30 billion) in sales for 2019, accounting for half of that year’s revenue. Another 350 billion yuan ($48.6 billion) in sales for 2020, accounting for 78% of revenue, was also falsified.
As a result, 2019 net profit was inflated by 63% and 2020 net profit by 87%, it said.
The alleged fraud, totaling 564.1 billion yuan ($78 billion) over two years, is the largest case of financial fraud ever to occur in mainland China’s stock markets, according to previous regulatory filings and state media reports.
In addition to the penalties imposed on Hengda and Xu, the CRVS fined six other executives for being “directly responsible.”
Like Xu, Xia Haijun, former vice chairman and CEO of Evergrande Group, was banned for life from the country’s stock markets.
“Xu Jiayin made decisions, organized and implemented the financial fraud… Xia Haijun organized, arranged and prepared the falsified financial reports… his intentions were really evil and the circumstances were serious,” the regulator said.
