Founder of China Evergrande accused of exaggerating sales by $78 billion

China Evergrande Group overstated its revenues by more than $78 billion and committed securities fraud for two years before its spectacular collapse in 2021, a top Chinese regulator said.

The China Securities Regulatory Commission accused Hui Ka Yan, Evergrande’s founder, of “making decisions and organizing fraud,” the company said in a filing with the Shanghai and Shenzhen stock exchanges on Monday evening.

Mr Hui was fined $6.5 million and banned from Chinese financial markets for life. Xia Haijun, a former CEO, was fined $2 million and, along with several other executives, was also banned from the financial markets. The company’s main onshore unit, Hengda, was fined $580 million.

The New York Times reported in December that questionable accounting and poor oversight led to Evergrande’s demise. In the years before it defaulted on its debts, Evergrande had treated the money it received for apartments as income, even though sometimes it had not built those apartments, the Times reported.

In the company filing, Hengda placed the blame solely on Mr Hui. As chairman of Evergrande, Mr. Hui was in charge of all of the company’s real estate operations and “instructed other staff to falsely improve performance,” the company wrote.

He did this, it added, “with exceptionally poor means and exceptionally serious circumstances.”

Regulators found that Hengda inflated its revenues by nearly $30 billion in 2019 and by $48.6 billion in 2020. It then raised money on the financial markets based on the falsified figures.

The development is yet another blow to Evergrande’s already shattered reputation. Once an emblem of China’s entrepreneurial success and ambition, Evergrande is now a name that angers homeowners across China.

Evergrande has become the most visible example of China’s real estate crisis. Its failure, with a debt burden of less than $300 billion, heralded the largest wave of real estate bankruptcies in modern history. China’s top leaders are now trying to shift its $18 trillion economy away from construction, a sector that once contributed to a third of the country’s growth and employed a large share of its workers.

After the company went bankrupt, Evergrande tried to work with private lenders and international investors who had lent it tens of billions of dollars abroad. Last summer, the company reported that it had made progress toward a restructuring deal.

Mr Hui was subsequently arrested by authorities in September and all restructuring talks came to an end.

The Hong Kong court ordered Evergrande’s liquidation in January.

Zixu Wang contributed reporting from Hong Kong.