China Securities Regulatory Commission punishes Luxiao Technology and investor claims officially kick off

Recently, Luxiao Technology announced that it had received the "Administrative Penalty Decision" from the Zhejiang Supervision Bureau of the China Securities Regulatory Commission. The China Securities Regulatory Commission determined that the company had the following illegal facts: first, it changed the use of raised funds without authorization; second, it failed to disclose the use of funds by Luxiao Group and its related parties.

Specifically, in terms of unauthorized changes in the use of raised funds, on October 9, 2012, the board of directors of Roxiao Technology reviewed and approved the "Proposal on Investment and Construction of Industrial New Technology R&D Base Projects." Because the project involves a lot of irregular expenses such as tomb relocation compensation, the company’s former chairman agreed that the supporting projects for the project should be implemented by Luxiao Group Co., Ltd. (hereinafter referred to as “Luxiao Group”), and the funds would be allocated by the infrastructure department after contacting the engineering unit in subsequent projects.

On November 27 and December 12, 2012, the company's finance and infrastructure departments transferred 20.5 million yuan and 9.5 million yuan in the special account of raised funds to the account for issuing the acceptance bill margin. The money raised for the project was transferred to the construction engineering unit in the name. After the acceptance bill was endorsed and transferred multiple times by the construction engineering unit and related enterprises, 30 million yuan of funds was transferred to Luxiao Group for supporting expenses of the company's new technology research and development base project.

In terms of undisclosed funds being occupied by Roxiao Group and its related parties, Roxiao Group occupied 30 million yuan of company funds in December 2012. The company did not promptly disclose the matter in the form of a temporary announcement, nor did it disclose the matter in the 2012 annual report. It was not until September 10, 2014 that the above matter was disclosed in the form of a temporary announcement.

In view of this, in accordance with the relevant provisions of the Securities Law, the China Securities Regulatory Commission made the following decision: give Luxiao Technology a warning and a fine of 300,000 yuan; give a warning to the relevant person in charge and impose a fine ranging from 50,000 yuan to 300,000 yuan. In the above announcement, Luxiao Technology stated that the company and relevant personnel humbly accepted the administrative penalties imposed by the China Securities Regulatory Commission and would not apply for administrative reconsideration or initiate administrative litigation and would pay the fines within the prescribed time. The company and the relevant parties sincerely apologize to all investors for changing the purpose of the raised funds without authorization and failing to disclose in a timely manner that the raised funds were appropriated by Roxiao Group and its related parties.

As early as September 9, 2014, Luxiao Technology issued an announcement stating that the company had received the "Notice of Investigation from the China Securities Regulatory Commission". On September 10, 2014, Luxiao Technology temporarily suspended trading and issued the "Announcement on the Diversion of Company Project Construction Funds." The secondary market shows that on September 9, 2014, the closing price of the stock was 29.05 yuan. After the announcement of the investigation, the stock price continued to fall. As of September 19, the closing price of the stock was 25.35 yuan.

Song Yixin, a lawyer at Shanghai Tianming Law Firm, said that Roxiao Technology’s behavior violated Article 63 of the Securities Law, which stipulates that the information disclosed by listed companies in accordance with the law must be true, accurate and complete, and must not contain false records, misleading statements or major omissions.

In order to protect the legitimate rights and interests of investors who were harmed by false statements, lawyer Song Yixin and lawyer Li Jian of Zhejiang Yufeng Law Firm jointly solicited litigation entrustments from investors who had purchased Luxiao Technology stocks and suffered losses due to false statements, and planned to represent the investors in claiming compensation. Lawyer Song Yixin said that according to judicial interpretations, the scope of investors who meet the conditions for claims from Luxiao Technology is investors who bought Luxiao Technology stocks between November 27, 2012 and September 9, 2014, and sold or continued to hold the stocks after September 10, 2014, can file a lawsuit with the Hangzhou Intermediate Court for compensation.

Lawyer Li Jian said that after Luxiao Technology issued an announcement on September 10, 2014 that it was under investigation, many investors had contacted them for pre-registration of claims. After half a year, the penalty decision finally came, and investor claims officially kicked off.