Suzhou Huadao Biopharma Fined $15.7 Million for IPO Financial Fraud Despite Withdrawal of Listing Application

The penalty decision shows that, upon investigation, HuaDao CAR-Tcell has the following illegal facts:

On December 21, 2021, HuaDao CAR-Tcell first disclosed the "Prospectus for Initial Public Offering and Listing on the ChiNext Market" (hereinafter referred to as the "Prospectus") draft. After two rounds of review inquiries by the Shenzhen Stock Exchange, HuaDao CAR-Tcell provided multiple responses. Among them, the "Prospectus" disclosed on March 30, 2022, updated the reporting period to 2019 to 2021.On August 22, 2022, the Shenzhen Stock Exchange initiated proceedings against HuaDao CAR-Tcell.On-site supervision of the sponsorship business for the initial public offering of stocks and listing on the Growth Enterprise Market. On September 30, 2022, HuaDao CAR-Tcell withdrew its application documents.

Upon investigation, the financial data in the eighth section of HuaDao CAR-Tcell's disclosed "Prospectus," titled "Financial Accounting Information and Management Analysis," contained false records. From 2019 to 2021, HuaDao CAR-Tcell falsely sold products such as copper 8-hydroxyquinoline, diphenyl sulfone, and sodium benzenesulfinic acid through the issuance of fake invoices, while also forging sales repayments. This led to false disclosures of sales revenue and profit in the "Prospectus," as detailed below:

1. Sales Revenue and Profit Inflation in 2019

In 2019, HuaDao CAR-Tcell issued fake invoices to individual businesses or companies such as timber trading departments and timber processing plants with which it had no business dealings. It then withdrew cash through bank accounts of related parties controlled by HuaDao CAR-Tcell (Suzhou Tianjian Food Additives Co., Ltd., Suzhou Yimaita Bioreagent Co., Ltd., Suzhou Yilan Jino Enterprise Management Center (Limited Partnership), Suzhou Yingbei Famous Food Enterprise Management Center (Limited Partnership), Jiangsu Yinglun Beijian Co., Ltd., Suzhou Beijian Famous Food Investment Center (Limited Partnership), hereinafter referred to as related parties) as well as other companies and individuals. The cash was subsequently deposited into HuaDao CAR-Tcell's account in the name of customer sales revenue.

During the due diligence period of intermediaries in 2020, to accommodate the intermediaries' requirements for client visits, the objects of the aforementioned falsely issued invoices were changed to seven individuals. Meanwhile, the invoices were reversed in red and reissued.After the unsuccessful individual client interviews in 2021, HuaDao CAR-Tcell once again changed the recipients of the aforementioned falsely issued invoices to Henan Xinruida New Materials Co., Ltd., Yao Weizhu, and Kunshan Changqing Chemical Co., Ltd., and once again issued red credit notes to cancel and reissue the invoices.Upon investigation, HuaDao CAR-Tcell artificially inflated its 2019 sales revenue by 25,596,460.19 yuan, accounting for 10.87% of the disclosed annual sales revenue, and inflated profits by 12,151,730.45 yuan, representing 28.31% of the disclosed total annual profit.

2. Sales Revenue and Profit Inflation from 2020 to 2021

From 2020 to 2021, invoices were fraudulently issued to a total of 11 customers, including Hubei Dimei Technology Co., Ltd., Jilin Dazhiming Economic and Trade Co., Ltd., Jiangsu Ford Hongye Chemical Co., Ltd., Jinxi County Yunxiang Pharmaceutical Co., Ltd., Liaoning Tianyi Pesticide Chemical Co., Ltd., Inner Mongolia Shijie Chemical Co., Ltd., Inner Mongolia Zhonghe Chemical Storage Co., Ltd., Shouguang Nuomeng Chemical Co., Ltd., Changchun Xinao Industrial Co., Ltd., Ningxia Shunbangda Chemical Co., Ltd., and Zhenjiang Chuangli Chemical Co., Ltd. Through bank accounts controlled by related parties of HuaDao CAR-Tcell and other companies and individuals, fictitious sales revenue was created, falsely increasing 2020 sales revenue by 26,376,106.19 yuan, accounting for 7.63% of the disclosed sales revenue for that year, and falsely increasing total profit by 10,612,146.10 yuan, representing 15.45% of the disclosed total profit for that year. In 2021, sales revenue was falsely increased by 28,761,061.91 yuan, accounting for 8.37% of the disclosed sales revenue for that year, and total profit was falsely increased by 15,001,399.44 yuan, representing 20.54% of the disclosed total profit for that year.

The above-mentioned illegal facts are evidenced by relevant public offering documents of HuaDao CAR-Tcell, HuaDao CAR-Tcell's self-inspection report, bank account fund flows, vouchers and other materials, financial data of HuaDao CAR-Tcell, and statements from relevant personnel, which are sufficient for determination.

The aforementioned actions of HuaDao CAR-Tcell violated the provisions of Article 19, Paragraph 1 and Article 78, Paragraph 2 of the Securities Law, constituting an illegal act as described in Article 181, Paragraph 1 of the Securities Law.

Liu Mingrong is the Chairman and General Manager of HuaDao CAR-Tcell.Zhou Peiliang is a director of HuaDao CAR-Tcell;Jin Lizhong was the CFO of HuaDao CAR-Tcell at the time;Zong Dongqing was the Board Secretary of HuaDao CAR-Tcell at the time;Chen Qiao is the niece of Liu Mingrong, and she does not hold a position at HuaDao CAR-Tcell but serves as the IPO coordinator for the company.

In view of HuaDao CAR-Tcell withdrawing its application documents after the Shenzhen Stock Exchange initiated on-site supervision work, and not registering for stock issuance, and after comprehensively considering the facts, nature, circumstances, and social harm of the violations by the parties involved, the CSRC has decided, based on Article 181, Paragraph 1 of the Securities Law:

1. Impose a fine of 3 million yuan on HuaDao CAR-Tcell (Suzhou) Biopharmaceutical Co., Ltd.;

2. Impose a fine of 2.5 million yuan on Liu Mingrong;

3. Impose a fine of 2 million yuan on each of Zhou Peiliang and Jin Lizhong;

4. Impose a fine of 1 million yuan on Zong Dongqing and Chen Qiao respectively.