Hikvision CEO Alleged Illegal Activities Investigated

By Charles Rollet, Published Dec 13, 2019, 07:02am EST (Info+)

Hikvision's CEO Hu Yangzhong is under investigation for suspected illegal activities, according to the PRC's securities regulator. This has become the source of notable analysis and discussion within the PRC.

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Inside this note, we examine the allegations, what PRC financial news reports claim, what the illegality they believe may be and how this might impact the company. We also share insights from noted PRC financial markets expert Fraser Howie on the party state's operations and the role of the PRC's securities regulator.

Investigation **** *** ****

** ******** **,********* ************* *** *** *** *** ******* private ***********, **** *******, **** **** under ************* ** *** ***** ********** Regulatory ********** (****) **** "********* ********** of ********** ************". ******* ********* *** the **** **** *** **** *******.

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PRC ******* *** ********

**** **** ** ******* *** *** stop ******* *** ********* **** ******* from ********** ******** ******** *********** ***** the ***** ** *** *************, **** even ***** **** ****** ****** (*** its ********** ******** ********** ****) ******* in:

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  • **** *** ****** ******** ***** ************, Can ********* *** **** **** **?******/******** ********** ****.
  • *********: ******* ****** *********'* ****** ********** Investigation(***** **** ****** -**** *,**** *)
  • **** ******* *****, ** ********* ****. Is ********* ******* ** ****** ************?****** *******
  • *** ********* ***** ******* ***** ************* Have * *** ***** **** $** Billion; *** ** **** *** *** Frequent ****-****.******** ******** *****.

Potential ******* **********

***** ******** *** ******* *********'* ********* records ** ***** *** *********** **** Co-Founder **** ******* **** ***** ******* of ***** ** *** ** ********* without ****** ***** ********** **, ********* Article ** ** ******* **************** ******* ****** **** **** ************ must ** *********:

******* **: *** ****** ** *** shares ** *** ******* **** ** the *********, *********** *** ****** ********** personnel ** * ****** ******* ***** be ******** ** *** ****** ******* within *** ******* **** **** *** date ** *** **** *** *** listed ******* ***** **** ** ************ on *** ******* ** *** ***** exchange.

*** ****** *** *** ***-********** ** these ****** ** *******. ***** **** Market************** *** **** **** ** ****** potential ******** ****** *****, ****** **** anyone *** **** ***** ******* ** stock ***** ** * *******'* *** - **** ** **** *******, ** early ********* ******** - ***** **** a ***** *** **** **** *******.

Financial ****** ********: "*** ***** ******* *** ***"

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**** ***** ****** *****, * ************* *** ********* *******, ***** ********* being ************ ******* ****************** *** *** **********. ***** **** this *** ******** ****** *** ****** the **** ***** ** *** *****:

******* ******** *** ******** ** *** a ******** ** **** ***** *** founder ** * *** ********** [*******] does *** **** *** *** ***********. TheParty ***** ******* *** ***!
**** ******* ********* ** ** ********* for *** ****** ***** ** **** not **** *** *** ***** *** untouchable ** *** *****. ****** ** stories ** *** ******* ** ***** one **** ******** *** **** ****** the **** ****!As *** ***** **** ***** *** *** ***** ** ***** * ******* **** ** *** ** ****** *** ***** ** *** *****. Almost all large private groups have had their founders disappeared for a few weeks, all illegal, all unexplained, and all modern day China. [emphasis added]

**** **** ***** ***** ***** *** CSRC's ************ *** *** ******/******* ***** such ** *********'* ****:

* ***'* *** *** ****** **** particular ********* ** *** ***CSRC ** ********* ******* ***** *** *** ***** ******* ***** ******** *** ** *********** ******* *** ****** ** ********** ************. That mantra about protecting retail investors is commonly heard because there is concern that they all come out to protest, especially outside the CSRC office!

** *** ****, ** ** **** as * *********** *** *********** *********?Here *** ****** ** ****** *** *** **. NO financial regulator in China is independent or transparent as we understand those terms in Western or developed markets BUT that does not mean they don't try and crack down on clear breaches of rules and falsification of financials etc. There is plenty in the way of breaches and poor disclosure and all sorts of manipulations and the CSRC has fined and punished many companies and people.

*** **** **** *** ** ** that ** **** ** ***but ** *** ********* ********** ** **** that it needs to juggle. [emphasis added]

Timing *** *********

**** *** ******** *** ****'************/*********** ** ***** *** **** *** clear ********* ***** *** **** ************** can **** *** ******* ***** ** a ******** *** ****** ******* ** be *********.

** *** *********, ** ** ***** before, ********* ** ************* *** ** *** ***, *** **** *** *** ***** to ****** ************** ********* **** ** fines *** ** *** ********** ****** to ******** ****, "** ***** ******** the ****" ** * ******** *****.

** *********, ******* *** ****** ** PRC ***** ********, ********** ** *** details ***** **** ************* **** **** released **** *** ****.

Uncensored ****** *** ***

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*** *** *** ******* ***** ******* to ** *********, ***** ** ******* in ****** ***** **** *** *** operates *** ** ********************** ******* ** *** *****. *** country ****** ***/*** ********* ** ***** of ***** **************** ** ***************** ******* *******, **** ***** **** last ****:

** *** ********** ** ******** ******** critical ******** ** *********'* *** ********** (something **** *** ***** ******** ** PRC ***** ******), **** ** *** a **** **** *** *********.

Hikvision ********

********* ******** ** ******* ************ ** these *******, ***** *** ******* *************, but *** **** ** **** *********:

********* **** ********* ***** **** *** China ********** ********** **********’* ************* ** the ***** ********* ** ********** **** its ********** ************. *** ******* **** has **** ******* **** *** ***** directors ****** ** ** *** ****.

Impact ** *********

***** ********* *** ******** **** **** investigation ** **** ******* ** *** two *********** *** *** *** ******* itself, ***** ** ****** ***** **** any ******** ****** ** *** *** will **** * ****** ****** ** the *******.

** *** **** *** ***** *** company's ******** ** ****. ********* ********* have **** **** ** **** "**. Hu" ** ******* ** *********'* **********, driving *** ****'* ********** ********* **** the *****'* ******* ***** ************ ************.

*******, ** *** ******** **** *** Hikvision,*********'* ********, **** ********, *** *******'* ****-**** ********* ***** Secretary *** ******* ** *** ******** ********** ***** 2018, *** **** ********* ** **** investigation. ** **** *** **** *** continued ***** ********** **** ********** **** of *** ******** *********** ******* **** may **** **** *** ****** ******* Hu.

Comments (7)

Charles, nice work!

Charles had some more details that did not make the report for space considerations but for those of you interested in reading about more details, we have copied them below:

Wumian Caijing's article about Gong had an important detail at the very end of the article.

2017年9月27日、2018年1月19日及22日,龚虹嘉通过大宗交易分别减持1.06亿股、1.3亿股股票,交易金额而分别为31亿元、48亿元。但上述三笔交易并未及时明确公告,直到2018年2月1日被深交所下发问询函,海康威视才在答复函中披露相关信息。

Gong did two major sell-offs, one on Sept 27, 2017, and another one on Jan 19 and 22nd in 2018. But there were no timely disclosures with clarity of the transactions. Hikvision did not fully report these two transactions, worth 3.1 and 4.8 billion yuan respectively, until Feb 2018 when it received an inquiry letter from the Shenzhen Stock Exchange.

This is Hikvision's response to the inquiry letter, listing Gong's sell-off and stating there was no violating of any disclosure regulations.

Screen Shot 2019-12-08 at 10 42 08 PM

On Sept 28, 2017, Hikvision released a report to disclose the sale on Sept. 27. But there was no specific and timely disclosure of anything relating to the Jan 19&22 4.8 billion yuan sale by Gong until the response letter to the Shenzhen Stock Exchange.

However, on Jan 23, Hikvision released a report detailing only that Hu Yangzhong's position increase over the time. And for Jan 19 and 22 respectively, Hu bought 43.5 million and 15.9 million shares respectively.

Screen Shot 2019-12-08 at 10 57 43 PM

What may be an issue here is that Gong sold 114.1 million shares on Jan 19, and 15.9 million on Jan 22. But there was no immediate disclosure of that until Feb 8, when Hikvision responded to the exchange's inquiry. The sale price was 37.48 yuan

Meanwhile, Hikvision only revealed on Jan 23 that Hu bought 43.5 million shares on Jan 19 and exactly 15.9 million on Jan 23. The purchase price was 37.48 too. It looks like Hu was purchasing from Gong but somehow the part about Gong selling was not fully disclosed until Hikvision was asked.

China Start Market had a follow-up report on Nov. 16 about this mentioning an interesting detail / theory for these actions – possible tax reduction.

The shares Gong has are all original restricted stocks prior to the IPO. To sell those shares via large block trades, Gong must pay 20%-25% income tax from the gain.

What a lot of original stock owners would do is to wait until the stock hits a lower price, and then sold them to another entity/person connected to them (like their relatives, partners) to hold such stocks on their behalf. In this way, they would pay a relatively lower tax and they don't necessarily lose those assets.

After such a sale, those original stocks become non-original stocks so whoever now owns those can sell - when the price is high again - via the secondary market without having to pay income tax. This is a process called stock-laundering.

These articles point to the possibility that:

  1. Gong sold shares in several OTC block trade transactions from 2016-2018, at prices lower to market
  2. Hu bought shares via block trades on the same dates at the same price
  3. They didn't fully disclose all those block trades until later asked
  4. It's possible that the two were trading between each other but at this point, we don't know if that's really the case because they didn't disclose so
  5. If they were trading between each other, should they disclose that given their relationship to each other and to the company.
Agree: 1
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Funny

I just finished reading this book by BRIGADIER GENERAL ROBERT S. SPALDING III > U.S. Air Force > Biography Display

It's inspiring, I suggest everyone interested in China do the same!

Agree: 2
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Funny

I think you omitted something important, like a link to the book or even its name!

Are you talking about Stealth War: How China Took Over While America's Elite Slept?

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Funny

Gong and Hu are already under the bus, as evidenced by the uncensored coverage. Expect this to become a criminal case and to see at least one of them vanish.

Agree: 4
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Funny: 1

Read it last week. Excellent book.

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Unhelpful
Funny

So in other words, he's going to become an Organ Donor very soon

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There is no doubt in my mind that Mr Hu is the absolute driving force behind Hikvision. I have had some very interesting conversations with him, I can say I learned a lot.

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