Zhitong Finance App News, CITIC Securities (600030.SH) and Haitong Securities (600837.SH) issued a notice on receipt of the “Administrative Penalty Decision” from the China Securities Regulatory Commission. It was discovered that in July 2022, CNNC Titanium White's application for the non-public offering of A-shares was reviewed and approved by the Development and Review Committee of the China Securities Regulatory Commission. From July to August 2022, CITIC China Securities Capital Management Co., Ltd. (CITIC China Securities for short) recommended a fixed increase plan to Wang Zelong, the actual controller of CNNC Titanium. According to the plan, “Customers can directly achieve fixed increase and short arbitrage through the OTC derivatives trading desk and settle profits in advance. There is no need to wait for a six-month lock-up period; it usually takes more than a month to return funds and profits.”

In September 2022, Wang Zelong decided to implement fixed increase arbitrage, target loan sources through the CNNC Titanium White Employee Stock Ownership Plan, and conduct OTC derivatives transactions with CITIC China Securities under the name of an investment development company (hereinafter referred to as an investment company). Han Yu-chen specifically implements the arbitrage plan and is responsible for connecting CITIC China Securities and CITIC Securities. From September 2022 to February 2023, Wang Zelong, Han Yuchen, and CITIC Securities agreed on an enhanced securities arbitrage business with CITIC China Securities and CITIC Securities, agreeing to transfer 88 million “CNNC Titanium White” shares from CNCC's employee shareholding plan. CITIC China Securities designated four private equity product accounts to conduct “CNNC Titanium White” stock hedging transactions, and CITIC Securities formulated a securities lending plan. In November 2022, CITIC China Securities had preliminary communication with Haitong Securities on the revenue swap business linked to the “CNNC Titanium White” non-public offering of shares.

In February 2023, due to insufficient subscription capital for an investment company, Wang Zelong suggested that his friend Hong Haowei join the CNNC Titanium Bide Enhanced Securities Arbitrage Deal. Hong Haowei participated in an OTC derivatives transaction with CITIC China Securities under the name of a No. 1 private equity investment fund (hereinafter referred to as Fund No. 1). From February 8 to February 10, 2023, the Derivatives and Trading Department of Haitong Securities received internal approval from the department, included “CNNC Titanium White” shares in the derivatives business alternative pool, and carried out the corporate printing approval process for the non-public issuance of subscription documents by CNNC Titanium White. On February 10, 2023, Haitong Securities participated in the first round of CNNC titanium dioxide non-public offering in accordance with the CITIC China Securities order price and subscription amount. The issue price was determined at 5.92 yuan/share on the same day.

On February 16, 2023, Haitong Securities signed a share subscription agreement with CITIC China Securities for non-public shares, and reached a multi-income swap with CITIC China Securities for shares linked to the “CNNC Titanium White” stock. The nominal principal amount was 532 million yuan, and the corresponding number of shares was 89.86.49 million shares. CITIC China Securities provided full security deposit. On the same day, an investment company reached a vanilla options portfolio agreement with CITIC China Securities, with a nominal principal of 426 million yuan and a corresponding number of shares of 719.595 million shares; Fund No. 1 and CITIC China Securities reached a vanilla options portfolio agreement. The linked target was “CNNC Titanium White” stocks, with a nominal principal of 89.038 million yuan, and the corresponding number of shares was 15.0405 million shares.

From February 6 to February 20, 2023, an investment company and CITIC China Securities reached an exchange of short earnings linked to “CNNC Titanium White” shares. The total number of shares opened was 719.595 million shares, with a corresponding nominal principal amount of 548 million yuan. From February 10 to February 20, 2023, Fund No. 1 and CITIC China Securities reached a number of short income swaps. The total number of open shares was 15.0405 million shares, and the corresponding nominal principal amount was 114 million yuan.

From February 6 to February 14, 2023, 88 million “CNNC Titanium White” shares held by the CNNC Titanium White Employee Stock Ownership Plan were distributed to four private equity product accounts according to the designated path of CITIC China Securities. The loan period was extended through extension and repayment of new and old until September 2023. From February 13 to February 21, 2023, four private equity product accounts sold 88 million shares of “CNNC Titanium White” shares. The average sale price was about 7.63 yuan/share, and the transaction amount was about 671 million yuan.

Wang Zelong did not inform the listed company about his actual participation in the non-public offering through the above transaction arrangement. On February 24 and March 3, 2023, CNNC Titanium announced a report on the issuance situation related to the non-public offering of A-shares, stating that the actual controller of the issuer participated directly or indirectly in the subscription for this non-public offering.

On March 9, 2023, CNNC Titanium White announced the listing of this non-public stock offering. The stock sale period is limited from March 9 to September 8, 2023. From March 17 to April 6, 2023, an investment company and Fund No. 1 applied to CITIC China Securities to terminate all long vanilla options contracts and short income swap agreements early, and CITIC China Securities settled the corresponding positions and settled them. In the end, Wang Zelong made an actual profit of 58,161,993.37 yuan, and Hong Haowei and Wang Zelong made actual profits of 14,193,879.43 yuan and 2,475,961 yuan respectively through Fund No. 1. CITIC China Securities had no actual profit. CITIC Securities's securities financing business revenue was 1,910,680.83 yuan, and Haitong Securities revenue was 789,445.21 yuan.

According to the China Securities Regulatory Commission, the above acts of Wang Zelong and Hong Haowei actually participated in the non-public offering through derivatives trading arrangements and sold securities at market prices, locked in advance the price difference proceeds with the discounted price of non-public shares, circumvented sales restrictions in disguise, and violated the provisions of section 36 of the “Securities Law” and section 38 (2) of the “Measures for the Administration of Securities Issuance of Listed Companies” (2020 Revision), etc., and constituted an illegal situation described in section 186 of the “Securities Law”.

Second, CITIC China Securities formulates arbitrage plans, establishes trading structures, and provides leveraged financial support for Wang Zelong and Hong Haowei to transfer shares in violation of restrictive regulations; CITIC Securities knows that the purpose of clients' securities lending is fixed increase arbitrage and cooperates with them to provide securities financing services; Haitong Securities subscribes to CNPC's non-public shares in its own name in accordance with CITIC China Securities's quotation instructions, objectively helping CITIC China Securities and its customers obtain stock returns, making the fixed increase arbitrage plan possible; Han Yuchen acted on behalf of Wang Zelong and others to implement the fixed increase arbitrage plan. The above acts of CITIC China Securities, CITIC Securities, Haitong Securities, and Han Yuchen together with Wang Zelong and Hong Haowei constituted an illegal situation described in section 186 of the Securities Law.

Third, in the process of Hong Haowei transferring shares in violation of restrictive regulations, Wang Zelong agreed on an arbitrage plan for enhanced securities, contacted and suggested that Hong Haowei join arbitrage, and jointly constituted an illegal situation described in section 186 of the Securities Law.

Fourth, Wang Zelong, as the actual controller of CNNC Titanium White, concealed that it actually participated in the non-public offering through a series of trading arrangements during CNNC Titanium White's 2023 non-public offering of shares. As a result, there were false records in the issuance report relating to CNNC Titanium White's non-public offering of A-shares, in violation of section 78 (2) of the “Securities Law” and section 40 of the “Administrative Measures on Information Disclosure of Listed Companies” (2021 Revision), etc., constituting an illegal situation described in section 197 (2) of the “Securities Law”.

The China Securities Regulatory Commission decided to confiscate a total of 60,637,954.37 yuan of illegal proceeds and fine of 72,500,000 yuan; Hong Haowei to seize 14,193,879.43 yuan of illegal proceeds and a fine of 7,000,000 yuan; to impose a total fine of 46,500,000 yuan on CITIC China Securities Capital Management Co., Ltd.; and on CITIC Securities Co., Ltd. to seize a total of 1,910,680.83 yuan of illegal proceeds and impose a total fine of 23,250,000 yuan on Haitong Securities Co., Ltd. The illegal proceeds were 789,445.21 yuan, and a fine of 6,975,000 yuan was imposed; Han Woo-jin was fined a total of 775,000 yuan.