Kangmei Pharmaceutical's 88.7 Billion Yuan Fictitious Monetary Funds Case: The 'Big White Horse' Fraud Built on High Cash-High Debt and Ginseng Inventory

Who Gets Targeted

The victims were primarily over 52,000 retail investors in the secondary market, mostly middle-aged and elderly retail investors and holders of pharmaceutical-themed funds. Attracted by the halo of a 'hundred-billion-market-cap traditional Chinese medicine leader' and the 'Chaoshan pharmaceutical king,' they blindly trusted the tens of billions of yuan in cash on the books and consecutive years of growing performance, treating the blue-chip stock as a retirement destination where they could lie back and win long-term. Their psychological vulnerabilities lay in superstition toward industry leader labels and audit report endorsements, lacking sensitivity to basic financial anomalies such as high cash and high debt and inverted interest income/expense. Following the crash, they faced the reality of stock prices plummeting by over ninety percent from their peak and years of savings being halved.

骗局怎么运作

• Step 1: Establishing the blue-chip persona: Using the identity of a traditional Chinese medicine decoction pieces leader, combined with grand narratives such as the full traditional Chinese medicine industry chain and ginseng planting bases, to attract institutional accumulation and retail chasing, pushing market capitalization to 100 billion and opening channels for subsequent financing.
• Step 2: Forging financial ammunition: From 2016 to 2018, by forging and altering large bank certificates of deposit and online banking vouchers to fabricate receipts, cumulative monetary funds were falsely inflated by approximately 88.7 billion yuan. In 2017 alone, over 29.9 billion yuan was falsely inflated, accounting for more than ninety percent of disclosed net assets, making the financial statements look heavily funded.
• Step 3: Maintaining the high cash-high debt disguise: While enormous cash sat on the books, heavy interest-bearing borrowings were simultaneously undertaken, and interest expenses far exceeded interest income. This structure, which violates commercial logic, was actually a fatal flaw in the fraud, yet it was explained as capital intensity and expansion needs in the traditional Chinese medicine industry, using rhetoric to paralyze skeptics.
• Step 4: Digesting inflated figures through the inventory black hole: Transforming about 18.3 billion yuan of inflated cash into traditional Chinese medicine inventories such as ginseng—which are difficult to inventory and have high valuation elasticity—combined with fabricated revenues of about 27.5 billion yuan and profits of about 3.9 billion yuan. This formed a closed loop from funds to inventory to profit, masking the destination of 11.6 billion yuan in non-operating fund occupations by related parties.
• Step 5: Stock price manipulation and harvesting: The actual controllers used related accounts to manipulate stock prices through continuous trading and self-trading to match favorable announcements, maintaining high valuations to facilitate equity pledge financing and cash-outs. In October 2018, after a self-media report titled 'Cash is Suspicious, Ginseng is Even More Suspicious' punctured the facade, stock prices hit consecutive limit-down days. In 2019, the company self-disclosed accounting errors, and the scam completely collapsed.

红旗信号（看到这些快跑）

• 🚩 High cash and high debt: Book monetary funds remain high for a long time while simultaneously carrying heavy interest-bearing liabilities; ample funds coexist with a zeal for borrowing, which does not conform to normal commercial logic.
• 🚩 Inverted interest income and expense: Interest expenses far exceed interest income, and the implied deposit rate calculated based on the book deposit scale is significantly lower than market levels, suggesting that the cash may not exist at all.
• 🚩 Abnormal and difficult-to-inventory inventory: High-value traditional Chinese medicine inventories such as ginseng account for a disproportionately high share and increase year after year without decrease. Inventory counting and valuation heavily rely on the company's own narrative, making external verification difficult.
• 🚩 Massive amount of accounting error corrections: Routinely writing down tens of billions in monetary funds at once under the guise of accounting errors is a typical exposed precursor to systematic fraud.
• 🚩 High equity pledge ratio and intensive bond issuance by major shareholders: Long-term high pledge rates coupled with frequent bond issuances imply a tight real capital chain, contradicting the image of book affluence.
• 🚩 Auditor consistently issuing standard unqualified opinions: Clean opinions for consecutive years severely conflict with the massive fraud exposed afterwards, suggesting that gatekeepers may have failed.

真实案例

• In April 2019, Kangmei Pharmaceutical released an announcement on corrections of previous accounting errors, admitting that monetary funds in 2017 were overstated by approximately 29.9 billion yuan. The market was in an uproar that day, and about 10 billion yuan in market value evaporated within two days. Subsequently, the CSRC initiated an investigation, and a retail investor holding heavy positions recounted in a public report that they held heavy positions for many years without selling, suffering heavy losses. (Source: [http://www.acfechina.org/article/detail-491](http://www.acfechina.org/article/detail-491))
• In November 2021, the Guangzhou Intermediate People's Court issued a first-instance judgment on the country's first special securities representative lawsuit. Kangmei Pharmaceutical was ordered to compensate 52,037 investors for investment losses totaling 2.459 billion yuan. The former actual controllers and their spouses, along with the auditing firm Guangdong Zhengzhong Zhujiang Accounting Firm, bore joint and several liability for compensation. This case is known as China's first securities class action case. (Source: [https://www.cnr.cn/gd/dwqgc/20260722/t20260722_527724305.shtml](https://www.cnr.cn/gd/dwqgc/20260722/t20260722_527724305.shtml))
• In November 2021, the Foshan Intermediate People's Court handed down criminal judgments: former actual controller Mr. Jia was sentenced to 12 years in prison and fined 1.2 million yuan for the crimes of manipulating the securities market, illegal disclosure and non-disclosure of important information, and unit bribery. His spouse, Ms. Yi, was sentenced to 6 years, and ten other senior executives were respectively sentenced.
• In July 2026, the Guangzhou Intermediate People's Court ruled in the first instance that the former actual controllers and their spouses must compensate the company 1.396 billion yuan, while former board secretary Mr. Bing and Zhengzhong Zhujiang Accounting Firm bear supplementary compensation liability within the scope of over 140 million yuan, extending the accountability chain to eight years after the incident.

Official Stance

• In December 2018, the CSRC officially filed an investigation into Kangmei Pharmaceutical for suspected violations of information disclosure laws and regulations, and in subsequent briefings characterized the case as premeditated, organized, and long-term systematic financial fraud.
• In May 2020, the CSRC issued administrative punishment and market ban decisions against Kangmei Pharmaceutical, imposing a maximum fine of 600,000 yuan on the company (under the securities law applicable at the time) and lifetime securities market ban measures against multiple responsible personnel.
• In 2019, China Central Television's 'Focus Interview' broadcasted a special report on financial fraud cases such as Kangmei Pharmaceutical, calling out its long-term systematic fraud as having severe adverse effects and calling for strengthened regulation and investor protection.
• In November 2021, the Guangzhou Intermediate People's Court issued and publicly released the first-instance judgment on the special securities representative lawsuit, clarifying that false statements by listed companies causing investor losses must be compensated according to law, and auditing institutions failing to exercise due diligence shall bear joint and several liability.

How to Protect Yourself

• ✅ Self-check high cash and high debt before buying blue-chip stocks: Compare the monetary funds and interest-bearing liabilities in annual reports. If both are high simultaneously and interest income is significantly low, they should be directly eliminated from the candidate pool.
• ✅ Verify cash using implied interest rates: Divide interest income by average monetary funds. If the annualized rate is far below demand deposit levels, it indicates that the authenticity of book cash is questionable.
• ✅ Beware of hard-to-inventory narrative: Maintain a discount mindset toward heavy-inventory companies whose valuation and inventory counting of ginseng, sea cucumbers, timber, etc., heavily rely on the company's own narrative, and verify whether inventory turnover matches revenue growth.
• ✅ Pay attention to major shareholder pledge ratios and bond issuance frequency: High pledging coupled with intensive bond issuance are signals of a tight capital chain and should raise alertness when conflicting with the image of book affluence.
• ✅ Make good use of investor protection channels: If suffering losses from false statements, preserve transaction records, pay attention to the China Securities Small and Medium Investor Service Center and court special representative lawsuit registrations, and claim compensation according to law.