(Yicai Global) June 27 -- Geeya Technology may become only the second stock jettisoned from China's Nasdaq-style ChiNext board after the securities regulator discovered the company had overstated earnings ahead of its initial public offering. The watchdog has referred the suspected criminal case to prosecutors.

The Shenzhen stock exchange, which runs ChiNext, has begun delisting procedures, it said in a statement. The China Securities Regulatory Commission registered a case after probing suspected illegalities at Geeya Technology, which specializes in set-top box equipment and software services, the company said yesterday.

The Chengdu-based firm's shares plunged 9.9 percent to CNY2.83 (USD0.43) today when they resumed trading after being halted yesterday.

The CSRC found that Geeya cheated to gain listing approval by posting inflated receipts and profits, by making up clients, inventing businesses, fabricating contracts, and falsifying payment collections, among other means, to fulfill the conditions for a public offering.

The regulator is also running the firm's IPO handlers through a fine-tooth comb to detect any complicity on their part. Preliminary findings point to sponsor institution Huatai United Securities, auditing office Guangdong Dahuadelu Accounting Firm and Tianyin Law Firm as all having issued documentary evidence containing falsities.

Stellar IPO

Geeya went public on the Growth Enterprise Market, also know as ChiNext, on Oct. 30, 2009 as one of the board's first batch of 'star enterprises,' a group of companies that lacked the track record or profitability to make the main board. On the first day of trading, investors drove its share price four times higher. The closing price was CNY35, giving it a market cap of CNY5.1 billion (USD773 million), five times what it is worth now.

The firm reported its IPO application materials swollen operating receipts in 2008, and in January to June 2009, making up 47.5 percent and 69 percent of its disclosed operating receipts for the periods, the CSRC said. The company also posted padded profits in 2008 and in January to June 2009, accounting respectively for 86 percent and 109 percent of its take claimed for the corresponding periods.

Geeya recorded CNY10 million (USD1.51 million), CNY28 million and CNY40 million in profit from 2006 to 2008, respectively, as its prospectus for 2009 indicates. This exactly meets the threshold for GEM listing. The figures seem shady in retrospect.

The net loss attributed to its parent company stood at CNY21 million in 2016, whereas that figure rose to CNY187 million last year, financial statements show.

If fraudulent listing is proved, Geeya, which has logged losses for three years in a row, will quite likely be subject to compulsory delisting.

Editor: Ben Armour