Kangde Xin Financial Fraud Case: A star white-horse scam where tens of billions in book cash turned out to be forged through bank cash pooling

Who Gets Targeted

The core group of victims consists of retail investors who bought Kangde Xin stocks and bonds between 2015 and 2019, reportedly involving around 130,000 retail shareholders with cumulative market capitalization losses exceeding 70 billion yuan. Most were ordinary wage-earning and retired retail investors attracted by the white-horse stock narrative: Kangde Xin bore the halo of an optical film leader, China's 3M, and a hundred-billion-yuan market cap, was repeatedly selected for authoritative index component stocks, and had brokerage research reports and bank-issued deposit certificates backing it up, making investors deeply believe in the credibility of the financial statements. Psychological weaknesses included blind faith in star enterprises and institutional endorsements, lowering vigilance upon seeing tens of billions of book currency cash, and lacking sensitivity to abnormal signals such as high dual balances of deposits and loans and high major shareholder equity pledges. After the bond default broke out, stocks hit consecutive daily limits preventing escape, ultimately resulting in the loss of their life savings and requiring years of litigation just for a chance at partial compensation.

骗局怎么运作

• Step 1: Packaging the star white-horse narrative. Kangde Xin claimed to be a dual leader in optical film and pre-coated film, promoting that it broke foreign monopolies to achieve import substitution. Its market cap once approached 100 billion yuan. Leveraging authoritative media lists, brokerage research reports, and corporate awards, it shaped a high-growth, stable-profit image, using its aura to lock in investor trust and making people naturally believe in the authenticity of its book performance.
• Step 2: Forging the entire chain of export business. By fabricating overseas sales contracts, customs declaration forms, logistics documents, and collection records, ordinary base materials were disguised as high-end optical film exports. Exploiting the difficulty of on-site verification for overseas clients, it closed the loop of fraud. Reports indicated there were also arrangements where funds flowed back through multiple underground channels to disguise sales collections, cumulatively inflating profits by over 10 billion yuan from 2015 to 2018.
• Step 3: Signing a cash pooling agreement to drain funds. The listed company, Bank of Beijing Xidan Branch, and controlling shareholder Kangde Group signed a cash management business cooperation agreement, stipulating that subsidiary account funds would be automatically pooled in real-time and in full into the group's account. Every penny entering the listed company's account was immediately swept away, leaving the actual account balance at zero for a long time, with major shareholders occupying over 10 billion yuan of funds.
• Step 4: Bank confirmation letters cooperating to cover up the truth. During audits and regulatory inquiries, relevant account statements and confirmation letters showed balances as truly available, simultaneously presenting funds already pooled to the major shareholder as deposits of the listed company. This made 12.2 billion yuan in monetary funds appear to sit on the books, prompting audit institutions to issue reports based on this, allowing the fake funds to pass all the way into the annual reports.
• Step 5: Sustaining operations through continuous financing via a Ponzi-like scheme. Relying on inflated profits and fake deposits, the company continuously issued bonds and pledged equity financing to patch holes, forming a debt-issuance cycle of borrowing new to repay old, until January 2019 when the books showed tens of billions in cash yet it failed to redeem a mere billion-yuan-scale ultra-short-term financing bond interest, causing the scam's capital chain to break and becoming fully exposed.
• Step 6: Executives fleeing abroad and shifting blame. After the crisis broke out, the company first defended it as a cash-pooling statistical caliber issue. The actual controller was subjected to criminal compulsory measures, while some executives stayed overseas or resigned, leaving losses to investors and creditors. Subsequently, the company was forcibly delisted, and bondholders and shareholders entered lengthy judicial rights-protection procedures.

红旗信号（看到这些快跑）

• 🚩 High dual balances of deposits and loans: Having over 10 billion yuan in book monetary funds while simultaneously carrying massive interest-bearing debt and continuously financing through bond issuance. Logically, if one has own funds to repay debt, paying high interest to borrow is a classic signal of monetary fund fraud.
• 🚩 Major shareholder equity pledging near full capacity: The controlling shareholder's pledge ratio remained persistently high, indicating that the real capital chain was strained and the purported ample cash had likely long been occupied or never existed.
• 🚩 Interest income and deposit scale obviously mismatched: Tens of billions in deposits generated interest income far below normal levels, suggesting book cash did not genuinely stay or could be swept away at any time.
• 🚩 Audit opinions and confirmation letters concentrated in a single bank branch: All massive funds were concentrated in a single branch and relied on its confirmation letters to verify balances, lacking multi-bank dispersed storage and third-party cross-validation, making it easily manipulated by cash pooling arrangements.
• 🚩 Actual controller repeatedly questioned by regulators yet forcibly pushing high dividends and large-scale related-party transactions: Instead of making positive clarifications when information disclosure was questioned, the company accelerated financing and related-party fund flows, presenting an obvious prelude to a blowout.
• 🚩 Performance growth rates far exceeding peers and relying on overseas customers difficult to verify: Profits grew rapidly year after year, but the main increments came from overseas sales that could not be verified on-site, requiring high vigilance against fabricated export closed-loop fraud.

真实案例

• In January 2019, Kangde Xin announced its inability to redeem on schedule the principal and interest of the 18 Kangde Xin SCP001 ultra-short-term financing bonds amounting to about 1 billion yuan, whereas its third-quarter report for 2018 showed book monetary funds of about 15 billion yuan—of which about 12.2 billion yuan was deposited at Bank of Beijing Xidan Branch. The vanishing of tens of billions in cash instantly triggered market doubts, and the Shenzhen Stock Exchange immediately issued an inquiry letter demanding an explanation of the true status of the funds. (Source: [https://www.cls.cn/detail/705458](https://www.cls.cn/detail/705458))
• In September 2020, the China Securities Regulatory Commission issued an administrative penalty decision, determining that from 2015 to 2018 Kangde Xin cumulatively inflated profits by about 11.9 billion yuan through fabricating sales business and other means, and made the actual balance of the listed company's account zero through cash management agreements with Bank of Beijing Xidan Branch and Kangde Group. Relevant annual reports constituted false records, the company received the maximum penalty, actual controller Zhong was banned from the securities market for life, and the company was forcibly delisted by the Shenzhen Stock Exchange in 2021. (Source: [https://c.m.163.com/news/a/FUERTODA00258299.html](https://c.m.163.com/news/a/FUERTODA00258299.html))
• In December 2024, the Suzhou Intermediate People's Court of Jiangsu Province delivered a first-instance verdict: Kangde Xin Composite Material Group Co., Ltd. was publicly sentenced for crimes such as irregular disclosure and failure to disclose important information. Former chairman Zhong Yu was sentenced to 15 years in prison under combined punishment for multiple crimes, fined 20.2 million yuan, and other responsible personnel received respective prison sentences. Simultaneously, the Suzhou Intermediate Court accepted a securities false statement dispute lawsuit filed by 11 investors against Kangde Xin and 40 defendants including Zhong Yu, claiming 4.139 billion yuan in compensation. (Source: [https://www.stcn.com/article/detail/1442461.html](https://www.stcn.com/article/detail/1442461.html))
• Bank of Beijing was fined 42.9 million yuan by the Beijing Banking and Insurance Regulatory Bureau for issuing false confirmation letters and deposit data in the Kangde Xin case and for internal control defects in its cash management business, and relevant branch responsible personnel were held accountable. This case became a landmark controversy holding bank confirmation letter businesses legally liable for civil compensation, and multiple investor lawsuits in 2025 listed it as a co-defendant demanding joint and several liability for compensation. (Source: [https://www.guancha.cn/GuanJinRong/2025_12_06_799579.shtml](https://www.guancha.cn/GuanJinRong/2025_12_06_799579.shtml))

Official Stance

• In September 2020, the China Securities Regulatory Commission issued an administrative penalty decision, ruling that Kangde Xin constituted major financial fraud and fraudulent offering violations, imposing fines and market entry bans on the company and 13 responsible persons including then-chairman Zhong Yu, and publicly pointing out its method of fabricating bank deposits through bank cash management agreements.
• In March 2021, official media outlets such as Xinhua News Agency reported that Kangde Xin triggered major illegal forced delisting provisions, with the Shenzhen Stock Exchange delisting its shares and using it as a landmark risk warning education case for the strict enforcement of capital market exit gateways.
• In December 2024, CCTV International reported the first-instance sentencing results of the Kangde Xin case, announcing Zhong Yu's 15-year prison sentence and the company's 410-million-yuan fine, emphasizing the judicial authorities' zero-tolerance stance toward financial fraud and continuous promotion of investor civil compensation procedures.
• The Beijing Banking and Insurance Regulatory Bureau issued an administrative penalty of over 40 million yuan targeting Bank of Beijing for its irregularities in issuing false confirmation letters and lax account management in Kangde Xin's cash management business, warning banking financial institutions against cooperating with clients to fabricate deposit information.

How to Protect Yourself

• ✅ Conduct a dual balance of deposits and loans check before buying white-horse stocks: Companies exhibiting both tens of billions in monetary funds and tens of billions in interest-bearing debt should be avoided regardless of how famous they are. Estimate real deposit yields by dividing interest income by average monetary funds; anything below current account levels lights a red flag.
• ✅ Inspect major shareholder pledges and related-party transactions: Regularly check the controlling shareholder's equity pledge ratio, fund occupation announcements, and related-party guarantee situations. Stay firmly away from companies with pledge rates exceeding 80% and frequent related-party dealings.
• ✅ Do not trust single-channel endorsements: Brokerage research reports, index component status, and bank confirmation letters can all be manipulated or suffer from negligence. Cross-compare gross profit margins, operating cash flows, and tax payment scales of peers; do not touch companies whose earnings quality and cash flow diverge long-term.
• ✅ Register for rights protection promptly after a blowout: Investors encountering false statement fraud should preserve trading records, pay attention to court representative lawsuit announcements and investor protection institutions' advance compensation arrangements, register claims lawfully within the statute of limitations, and be alert to secondary rights-protection fee scams.
• ✅ Diversify holdings and set disciplined stop-losses: Position sizes in single stocks should not exceed a tolerable proportion of total assets. Once signals like bond defaults, non-standard audit opinions, or criminal investigations of actual controllers appear, exit immediately according to discipline rather than fantasizing about a turnaround.