Eliza Wong
The Arrest Announcement
Beijing police detained Ruixi Kangda Chairman Li Yuejie (李月杰) on July 5th under China’s Criminal Procedure Law Article 82, with Director Zhu Chuncheng (朱春城) placed under house arrest. The startling announcement confirmed longstanding regulatory concerns about the company’s role in what investigators deem China’s largest securities fraud case.
According to official statements, charges stem from “suspected illegal disclosure or concealment of critical information” – identical violations cited in the China Securities Regulatory Commission’s 2023 penalty against the telecommunications equipment maker. This unprecedented criminal escalation marks a decisive turn in China’s corporate governance crackdown after financial losses exceeding ¥9 billion.
Leadership Shake-Up
The Beijing-based company immediately appointed Vice General Manager Han Meng as acting chairman while mandating concurrent disclosures to Shanghai Stock Exchange regulators. Such abrupt executive displacement inevitably triggers investor concerns about strategic continuity:
- Supply chain contracts awaiting signature
- Major network infrastructure projects
- Quarterly financial reporting deadlines
- Restructuring initiatives announced pre-arrest
Executives at the Center
Li Yuejie, founding chairman since 1999, controlled 38.7 million shares worth approximately ¥370 million alongside co-founder Zhu Chuncheng. Both alumni of telecommunications programs drew international attention during Ruixi Kangda’s successful IPO launch before regulatory scrutiny mounted.
Compensation Controversy
Despite widening losses exceeding ¥122 million in 2024, the board approved ¥1.24 million leadership salaries – drawing shareholder criticism during May’s annual meeting. Jilin University communications spotlighted Li’s industry credentials months before investigations surfaced.
The Fraud Scheme Exposed
From 2018-2020, Ruixi Kangda subsidiary Shenlan Xuntong became enmeshed in the “private network communication” scheme prosecutors dubbed A-shares’ biggest deception. Internal documents obtained by Financial Times showed how:
- Fictitious equipment transactions masked financing operations
- Inflated procurement orders exaggerated corporate valuations
- Prepayment structures bypassed financial oversight safeguards
Rather than genuine enterprise telecommunications equipment sales, the operation served as financing conduit:
Deceptive Accounting Practices
The Securities Regulatory Commission confirmed systematic fabrication of ¥351 million revenue during 2019 representing 13.21% of reported totals followed by ¥281 million fraud across 2020 financials. Investor losses impacted pension funds indirectly holding derivative Ruixi Kangda holdings.
Regulatory Fallout Spreads
Stock exchange authorities levied maximum ¥2 million fines during 2023 proceedings signaling apparent case closure. Beijing prosecutors’ intervention demonstrates mounting governmental intolerance:
- Criminal law prevails over civil penalties
- Individual culpability supersedes corporate sanctions
- Personal liability extends beyond fines
Jiangsu Shun Tian became among numerous entities embroiled in this private network communication fraud widening through:
Fraud Ecosystem Collapse
The 2021 discovery wiped ¥156 billion market cap off affected stocks before Zhu Chuncheng’s responsibilities included directing bogus equipment production routing. Coordinated disclosures exposed:
- Misrepresented vendor relationships
- Cross-company fraudulent transaction certification
- Nonexistent equipment “test results”
- Pathways enabling capital flight overseas
Multiple executives now face parallel investigations following Beijing’s enforcement escalation.
Corporate Viability Threats
First-quarter filings reveal growing financial strain:
- Revenue decline accelerating to 34.89%
- Operating losses exceeding ¥19 million
- Engineering projects postponed indefinitely
- Industry partnerships suspended
- Bank credit facility reviews initiated
Terminal Performance Decline
Since fraud disclosures surfaced:
- Market value implosion to ¥4.1 billion
- Deflation-adjusted annual declines since 2020
- CEO departure prompts client cancellations
- Losses exceed dividends paid throughout existence
Supply chain partners now demand prepayment before shipment while insurance premiums doubled targeting perceived sustainability risks.
Industry-Wide Implications
The private network communication fraud highlights vulnerabilities in secondary market structures:
- Auditor verification gaps facilitating deception
- Directors compensation ignoring performance
- Listing requirements focused quantitatively
- Regulatory communications inadequacies
Effective capital stewardship hinges fundamentally upon:
Governance Reformation
Post-scandal reforms emphasize:
- Independent board fraud oversight committees
- Mandatory forensic accounting protocols
- Criminal prosecution unification with CSRC findings
- Whistleblower protection frameworks
- Executive compensation-performance linkage
Communications sector investors should proceed cautiously amid investigations targeting related entities including:
- Chengdu Center communication
- National Electronics Import-Export
- Newland Software subsidiaries
- Informatization infrastructure affiliates
Market volatility risks remain elevated until Beijing clarifies:
- Prosecution timelines
- Accessory charges
- Company disqualification triggers
- Reorganization guidelines
- Civil compensation approval pathways
Strategic Investor Guidance
Society for Risk Analysis data profiles stable telecommunications infrastructure holders thriving despite industry turbulence:
- Export-focused industrial equipment suppliers
- National cybersecurity certified manufacturers
- Cash reserve ratios exceeding ¥2.8 billion
- Quarterly revenue growth persistence
- Government infrastructure collaboration histories
Shareholders currently trapped within questionable positions should:
- Document evidence jurisdiction transfer eligibility
- Combine claims exceeding ¥500k threshold
- Monitor creditor committee formation
- Consult securities restitution specialists
- Evaluate counterparty viability monthly
Validated class action qualifications require:
- Purchase timeframe transparency
- Brokerage documentation completeness
- Evidence differentiating fraud/mainstream losses
- Cumulative damages exceeding specific levels
Beijing’s regulatory transition toward forensic adoption parallels:
- Hong Kong Financial Reporting Council powers
- Dow Jones Sustainability Index screening
- Singapore Accounting Standards oversight
- Malaysian Securities Commission enforcement models
Corporate leaders must implement:
- Independent transaction verification
- Third-party risk assessment
- Executive compensation clawback clauses
- Multilayer disclosure governance
- Real-time anomaly detection algorithms
Immediate next steps involve retaining forensic specialists before exchanging positions adversely.
