What’s new: The controlling shareholder and former chairman of Chinese optical storage equipment supplier Amethystum Storage Technology Co. Ltd. has been detained by police on alleged securities fraud, nearly six months after the company was kicked out of Shanghai’s STAR Market.
Zheng Mu, former chairman of Amethystum, and former director Luo Tiewei, who acts in concert with Zheng, were arrested by police in Meizhou, Guangdong province, in late October, Amethystum disclosed this week.
Zheng and Luo jointly hold 29.58% of Amethystum, a controlling stake. Their shares have been frozen by a court in November due to loan disputes, according to the company.
The two, currently under custody in the Meizhou detention center, are accused of violating criminal law for fabricating crucial information in the company’s 2020 initial public offering, according to the company’s statement. If convicted, they will face up to a five-year imprisonment, along with fines ranging from 1% to 5% of the illegal fundraising amount.
Amethystum is also under investigation by the China Securities Regulatory Commission (CSRC) for failing to deliver its annual financial results, said the company.
Background: Amethystum was the first optical storage firm to sell shares on the Shanghai Stock Exchange’s Nasdaq-like board, which is dedicated to technology and innovation companies. It raised more than 1 billion yuan ($140 million) in an IPO in February 2020.
The stock rocketed nearly threefold on its debut day, giving the company a market value of as high as 16 billion yuan. However, the company’s profits went into free-fall shortly after the IPO, mainly reflecting its massive accounts receivable and losses on its complex loan guarantees to other companies. Regulators launched an investigation into the company in February 2022.
In November that year, the CSRC said the investigation found that Amethystum inflated revenue and profits between 2017 and 2020, and engaged in IPO fraud and information disclosure violations.
In April 2023, the regulator fined the company 36.7 million yuan and punished several executives for fabricating sales and profit figures in its prospectus and for failing to disclose its external guarantees. Its stock was ordered to be delisted in June 2023, citing major violations in listing rules.
By the end of November, Amethystum and its subsidiaries faced 128 lawsuits involving 1.4 billion yuan.
Contact reporter Han Wei (weihan@caixin.com)
Get our weekly free Must-Read newsletter.
