Roshow Technology is under China’s Securities Regulatory Commission’s (CSRC) watchful eye for violating financial regulations again, according to a National Business Daily report. In April, the company’s former Board Secretary Chai Shen was arrested for suspected insider trading.

In a new CSRC report, Roshow Technology was accused of misappropriating 30 million Chinese yuan (US $4.89 million) from the group’s largest shareholder intended to fund an IPO in 2012

Misuse of RMB 30 million IPO funding

Roshow Technology received a notice from the CSRC stating the company would be investigated for violating securities regulations. The company said it would fully cooperate with the commission, and comply to regulations that require publicizing information on the case. The company claims business operations have been normal, and is still reviewing 2012 accounting records.

Roshow Technology’s board decided to invest RMB 103 million to establish a new R&D headquarters in September 2012. By Dec. 25, 2014, Roshow Technology had acquired land for the site and completed related constructions. Roshow Technology directors then decided to let stockholders take over construction.

Roshow Technology’s Zhejiang subsidiary than transferred RMB 20.50 million funding from investors and 9.50 million worth of commercial acceptance bills were directly or indirectly channeled to the Roshow Technology Group for the construction project..

But according to CSRC and Shenzhen Stock Exchange regulations, special accounts need to be set up for IPO funding. Roshow Technology’s use of IPO funding violated those regulations. After the incident, the group returned all funding including interest back to subsidiary Roshow Technology on July 21, 2014.

Lack of legal awareness caused significant misunderstanding in the IPO process, explained Roshow Technology. Roshow’s accounting department and other basic departments were unaware of funding projects and regulations, the company said. Roshow Technology’s internal financial management system was also not regulated, and violated related provisions. The company has reported the incident to the CSRC and is willing to accept all related investigations and disciplinary actions.

Failing to identify Roshow Technology’s violations

Roshow Technology’s misuse of IPO funding occurred from November to December 2012, the company said. Yet  a company report published on April 24, 2013, stated: “The company has not allocated surplus funding from 2012 to other funding or IPO investments. As of the end of 2012, the company has not used any IPO funding.”

Additionally, the financial organization Dongxing Securities, which was entrusted with the funding, found Roshow Technology’s 2012 IPO funding met all related legal regulations. Special accounts were set up for the funding, and changes to the funds did not harm investor interests, according to Dongxing Securities.

Dongxing Securities and Roshow Technology have consistently defended the latter’s use of the IPO funding, but the National Business Daily report noted the company’s RMB 103 million investment in the new R&D site was not listed under the IPO funding purposes. That suggests Roshow Technology deliberately attempted to conceal its use of the RMB 103 million and contradicts the company’s statements.