300m yuan fund launched to compensate investors who suffer big losses

China's top securities regulator has announced its heftiest fine in a decade on an IPO sponsor - on Ping An Securities Co Ltd - underlining its determination to get tough on financial investigations.

Ping An Securities, the sponsor of Wanfu Biotechnology (Hunan) Agricultural Development Co Ltd's IPO in 2011, has been fined 76.65 million yuan ($12.5 million), the equivalent of three times its fee for acting as sponsor.

The fine was the largest handed out to an IPO sponsor since 2004.

The China Securities Regulatory Commission revealed on April 3 that its investigations showed Wanfu Biotechnology had started falsifying its books as early as 2008 in preparation for its listing.

From 2008 to 2011, the agricultural company from Hunan province - a cooking oil and cereals food provider - inflated its revenues by a total of 740 million yuan and net profits by 160 million yuan.

In 2011, its real net profits were only 1.1 million yuan while it claimed they were 60.3 million yuan.

Wanfu Biotechnology got listed on the Nasdaq-like ChiNext board of the Shenzhen Stock Exchange, in September 2011, raising about 425 million yuan.

Trading in its shares have been suspended since April 22.

On Friday, Ping An Securities, the securities arm of China's second-largest insurer Ping An Insurance Group, announced the launch of a special 300 million yuan fund to compensate investors who suffered big losses because of the false information.

The regulatory system for sponsoring brokerages was launched in 2004 in China, aimed at protecting investor interests and reducing the amount of illegal "money encirclement" in the capital market.

As a sponsor institution, a brokerage takes responsibility for the quality and accuracy of financial information being provided by companies applying for an IPO.

It is the first time that the CSRC had set up an independent investigation on a sponsor institution, and it is the first case that any sponsor has also been banned for three months from submitting any new IPO application.

In the first four months of this year, the CSRS has launched 18 probes into cases involving false information - nearly the same number as in the whole of 2012.

"The CSRC will continue to step up its efforts at tackling illegal activities during IPO applications, and impose heavier punishments on companies as well as the intermediaries, to curb information fraud," an official from the investigation bureau of the commission said.