Kangde Xin Bank Confirmation Failure Case: False Inquiry Confirmations and Fake Bank Statements Paired with Star Stock Fraud

Who Gets Targeted

The victims were primarily retail investors in the secondary market and institutional investors: shareholders who held Kangde Xin shares before delisting exceeded 130,000 households, with a cumulative market capitalization evaporation of over 70 billion yuan. Their typical psychological weakness was blind faith in the 'blue-chip' halo—having once been hailed as China's 3M optical film star, with a market capitalization of 100 billion yuan and over 10 billion yuan in cash on the books, making people feel it was safer than junk stocks; secondly, a superstition toward audit reports and bank-stamped account statements, believing that having the backing of a Big Four background and a listed bank meant it could not be fake; additionally, some institutional investors held heavy positions in bonds before the scandal broke, believing that a company holding tens of billions in cash could not default on 1 billion in short-term financing, and consequently bore all losses at the very end of the fraud chain.

骗局怎么运作

• Step 1: The listed company and controlling shareholder Kangde Group signed a 'Cash Management Business Cooperation Agreement' with the Bank of Beijing Xidan Branch, stipulating that subsidiary account funds would be swept in real-time and in full to the group's parent account. The listed company's accounts showed surface balances while actual available balances were zero, laying the financial foundation for all subsequent fraud.
• Step 2: From 2015 to 2018, the company fabricated overseas sales, forged contracts, invoices, and logistics documents to artificially inflate revenue and profit, cumulatively inflating profits by approximately 11.9 billion yuan. At the same time, the swept-away funds were still kept on the books under the name of bank deposits, with cumulative inflated deposits reaching up to 12.2 billion yuan over four years.
• Step 3: The auditing firm Ruihua sent annual inquiry confirmations, and the bank's Xidan Branch issued confirmation letters and statements showing huge account balances and interest, which were inconsistent with the zero balance later uncovered by the China Securities Regulatory Commission (CSRC). These false confirmations allowed the annual report audits to pass smoothly, and the fraud went unpunished for four consecutive years.
• Step 4: Armed with financial reports endorsed by these bank confirmations, the company continued to issue bonds, conduct pledge financing, and hype share increases, pushing its market capitalization to 100 billion yuan at one point. The controlling shareholder misappropriated over 17 billion yuan of the listed company's funds, forming a cycle of debt issuance, fund occupation, and continued whitewashing.
• Step 5: In January 2019, the company failed to redeem 1 billion yuan in ultra-short-term bonds. The market questioned why a company with tens of billions in cash could not repay a smaller amount. The bank confirmation letters then admitted that the account balance was zero, with only 12.209 billion yuan in swept-up linkage accounts, and the disappearance of the tens of billions in cash triggered a debt crisis.
• Step 6: After the scandal broke, it entered the accountability stage: CSRC administrative penalties determined false records, the court criminally sentenced the actual controller to 15 years in prison, and retail and institutional investors turned to sue 40 defendants including banks under securities misrepresentation liability disputes, attempting to recover compensation from intermediary links.

红旗信号（看到这些快跑）

• 🚩 Book monetary funds exceed 10 billion yuan while simultaneously engaging in high-proportion bond financing; high cash and high debt coexisting is a classic abnormal signal of high cash and high debt (dual highs).
• 🚩 Holding over 10 billion yuan in cash yet failing to redeem 1 billion yuan in maturing short-term financing; the authenticity of the funds should be immediately questioned.
• 🚩 The existence of cash management and fund-sweeping agreements between the listed company and the controlling shareholder, without fully disclosing the sweeping arrangements and restricted status in the annual reports.
• 🚩 Audit opinions remaining standard and unqualified for many consecutive years, yet the stock exchange repeatedly issuing inquiry letters regarding the authenticity of monetary funds, indicating that the confirmation process may have failed.
• 🚩 Large-scale equity pledging, frequent related-party transactions, and guarantees by the controlling shareholder, with the scale of occupied funds never disclosed.
• 🚩 The company is keen on telling stories of a 100-billion-yuan market cap and benchmarking against international giants, with revenue primarily supported by hard-to-verify overseas fictitious trade.

真实案例

• In May 2019, People's Daily China Economic Weekly reported that 12.2 billion yuan of Kangde Xin deposits held at the Bank of Beijing Xidan Branch had gone missing. The listed company's request to retrieve account statements to verify fund flows encountered resistance, and the contradiction between bank confirmations and book values was publicly brought to light for the first time.
• In September 2020, the CSRC imposed administrative penalties on Kangde Xin and its former chairman, determining continuous financial fraud from 2015 to 2018 and failure to disclose related-party guarantees; in December 2024, the first-instance judgment (upheld in the final instance in 2025) sentenced the former actual controller to 15 years in prison and a fine for the crimes of fraudulent securities issuance and breach of trust damaging the interests of the listed company, and the company was fined 410 million yuan.
• In May 2025, the Bank of Beijing announced that an asset management company had sued Kangde Xin for securities misrepresentation liability disputes, with Bank of Beijing and 10 other defendants facing claims of 5.147 billion yuan, and the case was transferred to the Suzhou Intermediate People's Court; in December 2025, the Bank of Beijing announced again that it became a defendant involving 4.139 billion yuan in claims from retail investors before delisting, with investors arguing that the Xidan Branch's issuance of false confirmation letters led to audit failures.
• In August 2026, the Procuratorate of Yongjia County, Zhejiang Province, concluded a novel fake-order case involving the exploitation of e-commerce platform advance-refund rules to siphon off funds. The principal culprit caused losses of over 1.5 million yuan to the e-commerce platform within two months and was ultimately sentenced, exposing fund scams that exploit platform rule loopholes to fabricate transactions. (Source: [https://m.gmw.cn/2026-08/19/content_1304550659.htm](https://m.gmw.cn/2026-08/19/content_1304550659.htm))
• In April 2021, according to 21 Century Business Herald, LeEco was fined a total of 240 million yuan by the Beijing Securities Regulatory Bureau for 10 consecutive years of financial fraud from 2007 to 2016, and its actual controller was fined 241 million yuan. Both the company's IPO and refinancing involved fraud, a case known as a capital market fraud that deceived investors for a full decade. (Source: [https://m.21jingji.com/article/20210412/herald/880a9b72aabcea7bcd1907e590a4bf41.html](https://m.21jingji.com/article/20210412/herald/880a9b72aabcea7bcd1907e590a4bf41.html))

Official Stance

• In September 2020, the CSRC issued administrative penalties and market ban decisions against Kangde Xin and its former chairman, determining that its annual reports from 2015 to 2018 contained false records and major omissions.
• In late 2020, the Beijing Banking and Insurance Regulatory Bureau fined the Bank of Beijing approximately 42.9 million yuan for multiple violations including cash management business, related to Kangde Xin's account arrangements.
• Starting in 2019, the National Association of Financial Market Institutional Investors (NAFMII) launched self-regulatory investigations and issued disciplinary actions against intermediaries related to Kangde Xin's debt financing instruments, involving banks and auditing institutions.
• In 2021, the Shenzhen Stock Exchange implemented a major illegal forced delisting of Kangde Xin, clarifying that it touched upon the circumstances of delisting due to major information disclosure violations.

How to Protect Yourself

• ✅ Be vigilant upon seeing high cash and high debt (dual highs): for companies with huge cash on their books yet continuously issuing high-interest bonds, first assume the cash does not exist, and then check for restricted funds and sweeping agreements.
• ✅ When reading annual reports, focus on searching for three keywords: 'cash management agreement', 'fund sweeping', and 'restricted monetary funds' to confirm whether deposits have been transferred to the controlling shareholder's parent account.
• ✅ Do not blindly trust bank confirmation letters and audit reports; pay attention to the stock exchange's inquiry letters regarding the authenticity of monetary funds, as dense inquiries themselves are a red flag.
• ✅ Check the controlling shareholder's equity pledge ratio and scale of related-party transactions; a major shareholder with a pledge rate close to 100% is a high-risk signal of fund occupation.
• ✅ Before buying bonds, verify whether the issuer's operating cash flow matches its book funds; a company with tens of billions in cash but perennial cash flow tightness should be avoided immediately.
• ✅ After falling victim to a scandal, register in time to participate in securities misrepresentation representative lawsuits, retain transaction records, and claim joint compensation from intermediary links such as sponsors, auditors, and custodians.
• ✅ Pay attention to regulatory penalty and self-regulatory discipline lists; financial reports endorsed by intermediaries disciplined by NAFMII or securities regulatory bureaus should be discounted and treated with caution.