CSRC Fines Yuandao Communication RMB239m and Bans Chairman and CFO Over IPO Revenue Fraud

CSRC Imposes RMB238.8 Million Penalty on Yuandao Communication

China's securities regulator has fined Yuandao Communication Co., Ltd. RMB238,836,800 for fabricating revenue in the listing documents for its 2022 initial public offering on the Shenzhen Stock Exchange's ChiNext board. The administrative penalty decision names the then chairman Li Jin and then deputy general manager, chief financial officer and board secretary Cao Yalei.

According to the China Securities Regulatory Commission, Yuandao Communication inflated operating revenue in 2019, 2020 and 2021 by RMB65,902,640.59, RMB160,688,291.80 and RMB263,632,076.14 respectively, through fabricated work-volume confirmation forms and other means. Those amounts represented 8.75%, 13.12% and 16.23% of the revenue disclosed in the prospectus. The company listed on July 8, 2022 after raising RMB1,169,184,000 in IPO proceeds.

The regulator ordered the company to correct the false disclosures and imposed a warning and the RMB238.8 million fine. Li Jin received a warning and a RMB2.5 million fine, while Cao Yalei was fined RMB4 million. Both were also barred from the securities market: Li for five years and Cao for four years. During the ban, neither can hold director, supervisor or senior management roles at a securities issuer or work in securities business elsewhere.

The company and some executives argued that there was no organised intent to fabricate, that revenue recognition followed accounting standards and that they cooperated with the investigation. The CSRC rejected the core defense, stating that evidence shows business and finance department employees fabricated work-volume confirmation forms and adjusted financial data, and that Cao Yalei knew of and participated in the conduct.

Inside the Fraud: Fabricated Work Confirmations and Mixed Accounting

Why the Regulator Rejected Yuandao's Revenue Recognition Defense

A central dispute was timing. The company argued the CSRC used invoicing dates as the revenue recognition point and therefore wrongly treated timing differences as fictitious revenue. The regulator said it did not. Because genuine and fabricated revenue were commingled, it relied on customer-confirmed work-volume confirmation forms and settlement documents, which it considered consistent with Yuandao's disclosed revenue recognition policy. That evidentiary approach shifts the issue from a technical accounting debate to whether the underlying workload records were genuine.

The Scale of the Misstatement and the Penalty

The inflated sums grew each year: from RMB65.9 million in 2019 to RMB263.6 million in 2021. In percentage terms, the distortion increased from 8.75% to 16.23% of reported revenue. The corporate fine of nearly RMB239 million dominates the case and is far larger than the individual fines, reflecting the regulator's focus on the issuer as the primary gatekeeper of offering documents. Still, the enforcement is also personal: the five- and four-year market bans remove the chairman and CFO from any securities-industry role, not just from Yuandao.

Executive Accountability: Supervisory Failure Versus Direct Orchestration

The decision draws a distinction between the two named senior executives. Li Jin, as chairman, signed the prospectus and 2022 annual report and was found to have failed in his duty of diligence and supervision. Cao Yalei, who oversaw finance, financing and disclosure, was described as having arranged the revenue inflation and discussed financial data adjustments with finance employees. That difference is reflected in the penalties: Li received a lower monetary fine but a longer five-year ban, while Cao received a higher monetary fine of RMB4 million and a four-year ban.

What the Ruling Means for Yuandao's Accounts

The CSRC also found that the company's 2022 annual report contained false records, violating Article 78(2) of the Securities Law and falling under Article 197(2). The order to correct those disclosures means Yuandao may need to publish corrected financial information for the period, although the decision excerpt does not specify a restatement deadline. That creates disclosure risk beyond the financial penalty itself.

What Board Members, Shareholders and Counterparties Should Watch Next

The decision creates immediate and near-term obligations for the company, its board and its shareholders, and sends a compliance signal to other issuers.

• For Yuandao's board and audit committee: The order to correct the false 2022 annual report requires deciding how the RMB65.9 million, RMB160.7 million and RMB263.6 million figures from 2019–2021 will be reflected in corrected disclosures. Put the correction on the board agenda before the next scheduled reporting deadline rather than waiting for an exchange inquiry.
• For current shareholders and creditors: The CSRC says appeal or reconsideration does not suspend enforcement, so the fine and bans take effect on service. Watch for a corrected annual report, any exchange risk warning, and language in the next financial statements about restatement, internal-control weaknesses or financing capacity.
• For clients and counterparties: Customer-confirmed work-volume forms and settlement documents were cited as key evidence. Companies doing substantial service or project-based business with Yuandao should verify their own confirmation records and sign-off trails, because those documents may be requested in enforcement or audit reviews.
• For executives and boards at other listed issuers: The case shows the regulator will penalise an issuer even when senior managers argue that real business and cash collection existed. The decisive issue was whether the underlying work-confirmation records could support the recognised revenue. Audit committees should ask whether revenue recognition relies on documents produced by the same business units that benefit from the revenue.