Hall of Shame

Information Technology

Sinosoft Technology Group Ltd (1297 HK)

Year: 2016


Sinosoft Technology Group Limited is principally engaged in information technology (IT) related businesses. Its business mainly includes the development of software, the integration of system, the sales of related computer products and the provision of other related services. The Company operates through four business segments: export tax software and related services, e-government solutions, carbon management solutions and system integration solutions. The Company is also engaged in the investment holding business and the provision of advisory services through its subsidiaries.

In March 2006 Sinosoft Technology plc listed on the London AIM market.  In December 2010, it privatised and delisted from the AIM Market.

Sinosoft started trading on the Hong Kong Stock Exchange (HKEx) in July 2013 after raising HK$481.77M in its IPO.

December 28, 2016 Zhongkui Research released a report; "Sinosoft: A serial Fraudster at large - Fool me once, shame on you, fool me twice, shame on me”.  The main points in its report were:-

  1. Sinosoft had previously listed on the London AIM Marker from 2006 to 2010.  Zhongkui alleged that Sinosoft had hugely inflated its financials before going public in London, its reported financials could no longer meet expectations. Its share price plummeted. Sinosoft announced its privatization on September 13th 2010 at the price of 8 pence per share, 58% lower than its IPO price of 19 pence.   Zhongkui also believed that Sinosoft was cutting its financial performance on purpose; it attributed its terrible results to a “difficult operating environment” and a USD 5 MN foreign exchange loss.
  2. Zhongkui believed that Sinsoft continued committing fraud in preparation for its Hong Kong listing, After its privatization, Sinosoft had claimed its operating environment was bleak in the first half of 2010, it quickly took a turn for the better in the second half with a HoH revenue increase of 271%. From its delisting in London in 2010 to going public in Hong Kong in 2013, Sinosoft reported revenue growth in 2010 and 2011 were 54% and 21%, respectively. Again, the so-called recovery was the result of fabrication. SAIC statements revealed that during the supposed years of rapid growth in 2010 and 2011, Sinosoft’s revenues were 45% and 38% lower, respectively, than the figures reported in its IPO prospectus.
  3. Revenue from its export tax rebate segment was inflated
  4. Exaggerating its e-government revenue.
  5. Inflating the carbon management business
  6. Fabricating software procurement cost to drain faked cash.

Zhongkui concluded that Sinosoft simply had zero investment value; that Sinosoft management had continuously perpetuated fraud and forgery for years; that its incessant infringement of shareholder interests should be investigated and prosecuted and that Sinosoft should be delisted.

December 29, 2016 Sinosoft issued a clarification saying the allegations were groundless and contained various misrepresentations, malicious and false allegations and obvious factual errors of the Group which the Company wished to clarify and responded to the allegations.

December 30, 2016 Zhongkui issued a rebuttal to Sinosoft's clarification and expanded on its report. The second report alleged that the revenue and profit of all subsidiaries of the Group appearing in the SAIC record, especially those for financial years 2011 and 2012, when added up, are significantly less than the revenue and profit of the Group as stated in other publicly available documents of the company including its Listing prospectus.

January 3, 2017Sinosoft issued a clarification again saying the allegations were groundless and contained various misrepresentations, malicious and false allegations and obvious factual errors of the Group.  It then responded to the allegations.

February 17, 2017 Sinosoft had engaged Baker Tilly Hong Kong to perform certain agreed-upon procedures, with respect to certain financial-related issues raised in the Zhongkui Reports, in order to address the allegations.  The auditors, Deloitte, had previously recommended that an independent investigation (including forensic procedures) be conducted into the allegations made in the Zhongkui Reports. While the Company had informed Deloitte that the Company is satisfied that having an independent accounting firm perform certain agreed-upon procedures would provide sufficient evidence to address the allegations. Deloitte was nonetheless of the view that the Agreed-upon Procedures had a narrower scope of work than an investigation. Accordingly, it took the view that the Agreed-upon Procedures would not provide sufficient evidence to enable a conclusion to be reached on the allegations, for the purpose of its audit, and tendered its resignation as auditor of the Company. 

February 21, 2017 Sinosoft announced the resignation of Deloittes and the appointment of Baker Tilly as auditors.

February 23, 2017 Sinosoft issued the results of the Baker Tilly review.  Based on the results of the review Sinosoft said the Company and the Audit Committee were of the opinion that the Allegations made in the Zhongkui Reports were untrue, groundless, misleading and malicious.  


Zhongkui Research: Sinosoft: A serial Fraudster at large, 28 Dec 2016
Sinosoft: Clarification Announcement, 29 Dec 2016
The HK Standard: Hard times amid Sinosoft shortsell, 29 Dec 2016
Sinosoft: Clarification Announcement, 3 Jan 2017
Reuters: China's Sinosoft again rejects shortseller report, shares rise, 3 Jan 2017
ET Net: Sinosoft Tech further refutes second Zhongkui report, 3 Jan 2017
Sinosoft: Auditor Resignation, 21 Feb 2017
Sinosoft: Results of Tilly Baker Review, 23 Feb 2017
Sinosoft: Annual Report YE Dec. 2016
Sinosoft: Annual Report YE Dec. 2015
Sinosoft: Annual Report YE Dec. 2014
Sinosoft: Prospectus July 2013
HKEX: Sinosoft Filings


 

Auditors

Company From To
Deloitte 27-Jun-13 17-Feb-17
Baker Tilly 17-Feb-17 -

Advisors

(IPO - Initial Public Offering, ASO - Additional Share offerings)

Type Date Role Party
IPO 9-Jul-13 Auditor(s) Deloitte
IPO 9-Jul-13 Global Coordinator(s) China International Capital Corp
IPO 9-Jul-13 Global Coordinator(s) CMB International
IPO 9-Jul-13 Joint Lead Managers-Books China International Capital Corp
IPO 9-Jul-13 Joint Lead Managers-Books RHB
IPO 9-Jul-13 Joint Lead Managers-Books CMB International
IPO 9-Jul-13 Legal Adviser to the Issuer(s) Jingtian & Gongcheng
IPO 9-Jul-13 Legal Adviser to the Issuer(s) Conyers
IPO 9-Jul-13 Legal Adviser to the Issuer(s) Fenxun & Partners
IPO 9-Jul-13 Legal Adviser(s) to the Manager(s) Pang & Co
IPO 9-Jul-13 Legal Adviser(s) to the Manager(s) Fenxun & Partners
IPO 9-Jul-13 Private Equity Sponsor(s) CMB International
IPO 9-Jul-13 Registrar(s) Conyers
IPO 9-Jul-13 Registrar(s) Tricor

Directors

(CAC/MAC Chairman / Member Audit Committee - NC Nomination /Governance Comm. - CC Compensation/Remuneration Committee)

Type Name Role From To
Executive Xin Yingmei Chairlady, CEO, CNC 6-Jan-11 -
Executive Yu Yifa MCC, CFO 4-Apr-11 1-Jan-19
Independent Kwauk Teh Ming Walter CAC, MCC, MNC 31-Oct-12 -
Independent Kang Choon Kiat CCC, MAC 31-Oct-12 -
Independent Zong Ping MAC, MNC 31-Oct-12 -
Non-Executive Hu Xiaoming Simon 1-Jan-17 1-Jul-19
Senior Management Ngai Wai Fung Company Secretary - -

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