The China Securities Regulatory Commission (CSRC) has pulled up Shenzhen-listed Yan Bian Highway Construction Co Ltd and Jilin Aodong Medicine Industry Group Co Ltd for illegal disclosure in the Guangfa Securities case.

The CSRC said certain people connected to the case are also suspected of securities crime and that it had handed the case to the public security bureau for investigation.

The securities watchdog said it found out that the two companies failed to present timely and accurate information on Yan Bian's share transactions with Guangfa Securities Co Ltd.

The CSRC has sent penalty notices to the two companies.

The two firms' shares started rising without any apparent reason since April 26, 2006, until they announced 40 days later that Guangfa Securities, China's sixth-largest brokerage, was seeking a backdoor listing by buying a major stake in Yan Bian.

"Guangfa is in talks with Yan Bian's largest shareholder, Jilin Aodong Medicine Industry Group Co Ltd, to buy a 27.3 percent stake in the construction company," Yan Bian and Jilin Aodong said in separate statements published on the Shenzhen Stock Exchange website on June 5, 2006.

"The CSRC believes the firms' information disclosure was not timely, and not accurate," an official who participated in the year-long investigation said on condition of anonymity yesterday.

"The CSRC has found evidence of insider trading and other forms of financial crimes in the company's share trading," he said, but refused to elaborate on the number of suspects.

Jilin Aodong, it was believed, would be the primary beneficiary if Guangfa successfully got listed by buying into Yan Bian. Jilin Aodong's share price crossed 100 yuan on April 30 and hit 110 yuan the following trading day, becoming the most expensive item on the A-share market that day.

Yan Bian shares have ceased to trade because of an ongoing share restructure since October.

Local securities firms are believed be interested in backdoor listings as few of them can match the standards necessary for direct listing on the A-share market because of a four-year slump in the securities industry. This perception has triggered speculation about more backdoor listings of securities firms by buying into listed companies.

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