Core Findings: What were the red flags before *ST立方 (Cubic Digital Technology Co.,Ltd.)'s massive financial fraud came to light? First, the company repeatedly adjusted accounting errors. Second, its surging revenue did not align with expenses. Third, it attributed revenue growth to enhanced core competitiveness, yet its gross margin dropped to levels typical of trading businesses.
*ST立方 triggered a mandatory delisting threshold due to financial fraud, causing its stock to hit the daily limit-down.
From 2021 to 2023, Cubic Digital Technology inflated revenue by 638 million yuan and costs by 628 million yuan through proxy businesses, financing trades, and fake trades.
According to the China Securities Regulatory Commission (CSRC), the company falsely reported revenue for two consecutive years, with fabricated amounts exceeding 500 million yuan—more than 50% of its total disclosed annual revenue during that period. This likely breaches the mandatory delisting rule.
**Three Major Fraud Methods** The company employed the following fraudulent practices:
1. **Proxy Business Fabrication** *ST立方 and its subsidiaries conducted proxy businesses using gross accounting. However, they lacked control over goods before transferring contracts, did not handle logistics, bore no primary responsibility or inventory risks, and had no pricing autonomy. - 2021: Inflated revenue by 218 million yuan (39.10% of annual revenue) and costs by 218 million yuan (47.76% of costs). - 2022: Inflated revenue by 38.48 million yuan (6.38%) and costs by 38.48 million yuan (6.74%). - 2023: Inflated revenue by 19.57 million yuan (10.24%) and costs by 19.57 million yuan (11.92%).
2. **Financing Trade Fabrication** The company engaged in financing trades disguised as sales, providing upfront payments to suppliers and charging fees for credit periods. These were essentially loans, not genuine trades. - 2021: Inflated revenue by 61.37 million yuan (10.99%) and costs by 58.76 million yuan (12.85%). - 2022: Inflated revenue by 222 million yuan (36.84%) and costs by 216 million yuan (37.94%). - 2023: Inflated revenue by 26.30 million yuan (13.76%) and costs by 25.66 million yuan (15.63%).
3. **Fake Trade Fabrication** In 2022, *ST立方 conducted circular trades with no commercial substance, inflating revenue by 51.04 million yuan (8.46%), costs by 50.53 million yuan (8.86%), and gross profit by 510,400 yuan (0.33% of total profit).
**How Financing Trade Fraud Was Identified** Financing trades—disguised loans under trade pretenses—have become a tool for fraud due to their opacity. Though *ST立方’s profit inflation was minor, its revenue/cost distortions were significant, leading to the fraud ruling. Key detection clues: - **Improper Gross Accounting**: The company used gross accounting for proxy businesses despite lacking control over goods, contradicting accounting standards. Notably, regulators questioned its 2021 revenue method, but the company falsely claimed compliance. - **Non-Compliant Revenue Recognition**: Financing trades violated revenue准则 by misclassifying loans as sales.
**Pre-Fraud Warning Signs** Before the fraud was confirmed, recurring accounting adjustments signaled risks. In April 2024, the company restated three years of revenue (56.43 million yuan) by switching from gross to net accounting for hardware trades. The same day, it received a CSRC investigation notice for disclosure violations.
**Fraud Motives and Anomalies** Formerly a lightweight materials firm, *ST立方 rebranded as a "digital tech service provider" after a 2020 ownership change. Revenue soared from 198 million yuan (2020) to 604 million yuan (2022), but anomalies emerged: - **Revenue-Expense Mismatch**: While 2021 revenue jumped 182.49%, sales and management expenses dropped 56.10% and 59.49%, respectively. - **Declining Margins**: Despite claiming competitiveness drove growth, gross margin fell to 2.65% in 2022—typical of low-margin trading. - **Persistent Losses**: The company reported consecutive net losses excluding one-time gains, raising concerns about operational viability and compliance with ChiNext delisting rules.
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