Leshi, once hailed as ‘China’s Netflix’, and founder Jia Yueting hit with fines worth US$73.6 million in China for financial fraud

Daniel Ren
·3-min read

Chinese video streaming provider Leshi Internet Information and Technology and its founder, Jia Yueting, have been fined about 482 million yuan (US$73.6 million) by regulators for financial fraud committed from 2007 to 2016.

The China Securities Regulatory Commission (CSRC) had fined the company 240.6 million yuan for falsifying earnings in the 10-year period and for misreporting facts in its initial public offering (IPO) documents, Leshi said late on Monday. It made its trading debut on the ChiNext, a technology board for Chinese start-ups on the Shenzhen Stock Exchange, in 2010. Jia, 48, has been fined 241 million yuan for the same offences.

Leshi, once viewed as China’s answer to US streaming service Netflix, was the most expensive stock on the ChiNext in 2015, with its market capitalisation hitting 170 billion yuan. But its debts have mounted since 2017 amid its founder’s ambitious plan to expand Faraday Future (FF), a Los Angeles-based electric vehicle (EV) start-up.

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The CSRC launched an investigation into Leshi in April 2019 after the company disclosed that Jia, also its biggest shareholder, was suspected of violating financial disclosure laws.

Monday’s fines come after FF, which has merged with Property Solutions Acquisition Corp (PSAC), a blank-cheque company, made an attempt to raise money in the United States through a listing. PSAC is seeking a listing on the Nasdaq and is expected to complete its fundraising exercise within weeks.

Monday’s fines come after FF, which has merged with Property Solutions Acquisition Corp (PSAC), a blank-cheque company, made an attempt to raise money in the United States through a listing. Photo: Reuters
Monday’s fines come after FF, which has merged with Property Solutions Acquisition Corp (PSAC), a blank-cheque company, made an attempt to raise money in the United States through a listing. Photo: Reuters

In January, the company and PSAC said that they would merge into one entity valued at US$3.4 billion. However, earlier the same month, FF was bailed out by about 30 institutional investors from China, the US and Europe. Leading Chinese carmaker Zhejiang Geely Holding Group as well as a clutch of state-owned enterprises from Zhuhai in Guangdong province were among the white knight investors, who pumped US$1 billion in fresh capital into FF.

“Jia Yueting’s reputation in China will be a major stumbling block to Faraday Future’s business growth in the country,” said Eric Han, a senior manager with business advisory firm Shanghai Suolei. “The outlook remains unclear for the EV start-up, as competition is also escalating in the market.”

The CSRC has been urging Jia to return to China to repay his debts since 2019. He finalised a personal bankruptcy filing in the US last year.

The 240.6 million yuan fine represents 5 per cent of the funds Leshi raised in its IPO, the company said. Its listing status was suspended in May 2019 after it booked negative assets worth 3 billion yuan for the previous year. According to market rules, it will be expelled from the stock market if it fails to post a positive net worth in the next financial year.

Jia founded FF in 2014 with the ambition of challenging Elon Musk’s Tesla. PSAC has said the merger will fund the production of FF91, a luxury electric car FF unveiled in 2017. The carmaker aimed to launch the FF91 in 2019 and expected it to be sold at US$200,000, but has delayed production plans several times because of financing issues.

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