On August 10th, listed company Kangni机电 announced the second-instance verdicts in several investor lawsuits related to securities misrepresentation disputes. Notably, Guotai Haitong Securities Co., Ltd. was ordered to bear a 50% joint and several liability. This case stems from a risky 3.4 billion yuan acquisition made in 2017 that has come back to haunt those involved.

When the 3.4 Billion Yuan Acquisition Unraveled

Kangni, founded in 2000 and listed in 2014, primarily operated in rail transit and automotive parts. In 2017, seeking a second growth curve, the company spent 3.4 billion yuan to acquire a 100% stake in consumer electronics firm Longxin Technology. At the time, Longxin promised an average annual net profit growth rate of nearly 30% between 2017 and 2019, a target it precisely hit in 2017. However, the good times were short-lived. Kangni soon discovered systemic fraud and illegal guarantees at Longxin.

According to the administrative penalty decision, Longxin concealed that 300 million yuan in deposits were pledged, and engaged in financial fraud for three consecutive years from 2015 to 2017. It inflated revenue by 900 million yuan through issuing false VAT invoices or recognizing revenue without invoices. The payments for these inflated revenues were made by a company controlled by Longxin's then-General Manager, Liao Liangmao, under client names. This resulted in false statements in Kangni's restructuring materials, leading to penalties from the securities regulator for Longxin and its executives. This fraud forced Kangni to record massive goodwill impairment in 2018, resulting in a net loss of 3.151 billion yuan for the year.

Guotai Junan, which served as the independent financial advisor for the acquisition, was drawn into the storm. It merged with Haitong Securities in 2025 and is now known as GTHT. In its 2017 independent financial advisor report, the firm stated it had conducted due diligence on the facts and bore a duty of honesty, accuracy, and diligence. The advisor and Kangni were also familiar partners, as it had been the sponsor and underwriter for Kangni's IPO, earning a total of 36.8242 million yuan in fees.

Investors Sue, Intermediaries Share the Blame

Following the fallout, 17 investors took Kangni to court seeking compensation. According to announcements, the total amount claimed was 382 million yuan. Recently, Kangni received second-instance verdicts on two lawsuits from institutional investors. One verdict upheld the original ruling. Kangni is responsible for compensation and court fees totaling 33.09 million yuan. Other defendants, including GTHT, Suya Jincheng Accounting Firm, Dongzhou Appraisal, and Jiayuan Law Firm, bear joint and several liability within ranges of 50%, 40%, 15%, and 2% respectively. Then-Chairman Chen Yingqi and then-Vice Chairman and President Gao Wenming are each liable within a 2% range. Suya Jincheng, Dongzhou, and Jiayuan were responsible for audit, appraisal, and legal work, respectively.

The other verdict overturned the first-instance decision. In a 2025 first-instance ruling, an institutional investor had named Kangni, GTHT, Suya Jincheng, Chen Yingqi, and Gao Wenming as defendants, seeking 192 million yuan, but the court had not supported the claim. After the investor appealed, the second-instance court reversed the decision, ordering Kangni to compensate the investor for investment losses of 99.7993 million yuan. Adding the 1.04 million yuan in court fees, the total exceeds 100 million yuan. Concurrently, GTHT, Suya Jincheng, Chen Yingqi, and Gao Wenming bear joint liability within 50%, 40%, 2%, and 2% ranges, respectively. Based on this, GTHT's maximum liability in this case is approximately 50.42 million yuan. This 50% joint liability is relatively minor for GTHT, which had total assets exceeding 2.11 trillion yuan and net profit of 29.1 billion yuan in 2025, representing just 0.0024% of its assets and 0.18% of its profit.

Kangni stated that for the upheld judgment, payment procedures are underway, and for the reversed judgment, it has already paid in full. As of August 11th, Kangni has settled most verdicts, one institutional investor does not require payment, another will be paid shortly, and lawsuits from three remaining retail investors are in second-instance proceedings. Industry insiders note that if Kangni pays investors in full, those investors cannot claim the same losses again from GTHT or others, but Kangni may seek proportional recourse from the intermediaries and executives.

A New Era of Accountability

In the past, penalties for intermediaries in misrepresentation cases were often limited to confiscating service fees or administrative fines. Now, civil joint liability is becoming the norm. For example, in the Zhonganke case, China Merchants Securities bore 25% joint liability, and intermediaries in the Zeda Yisheng and Zijing Storage cases made advance payments of hundreds of millions. Even if transactions are long completed, as long as due diligence was flawed, liability can still be pursued years later. Investment banks cannot relax their vigilance just because a project is "outdated."

At the 2026 Lujiazui Forum, the chairman of the China Securities Regulatory Commission emphasized strict regulation, promising to severely punish insider trading, market manipulation, and misrepresentation that harm investor interests, and to resolutely eliminate "bad actors." This Kangni case serves as a wake-up call for brokerages like GTHT. Investment banks must put "diligence and responsibility" into practice and truly uphold their role as the "gatekeepers" of the capital market.