On April 16, 2018, the China Securities Regulatory Commission (CSRC) announced the 《Administrative Penalty Decision》 and the 《Market Entry Ban Decision》 against Wanjia Culture (now renamed Xiangyuan Culture) and Longwei Media. Huang Youlong (Note: Zhao Wei's husband), Zhao Wei, Kong Deyong (Note: then chairman of Wanjia Culture) and others were respectively fined and banned from the securities market for 5 years.

According to the CSRC's penalty decision:

"First Offense": Hasty Announcement, Seriously Misleading the Market

Longwei Media, with insufficient domestic funds prepared on its own and the financing from relevant financial institutions pending approval (with great uncertainty), acquired a listed company as an empty-shell company and hastily announced the acquisition, seriously misleading the market and investors.

• The total funds required for the acquisition were 3,059.9 million yuan
• In the acquisition plan, Longwei Media's own funds were 60 million yuan
• The remaining funds were all borrowed, with a leverage ratio as high as 51 times

After signing the "Equity Transfer Agreement", Longwei Media negotiated financing with relevant banks, and the financing from the bank was subject to the approval process of the bank's head office, with significant uncertainty as to whether it could be finally approved.

Longwei Media was established only one month before this acquisition and did not fully prepare funds during this period. With limited available funds in China and insufficient preparation for the funds to be raised from financial institutions, it adopted a highly leveraged acquisition method and signed the equity transfer agreement. When the ability to perform and the outcome of performance were uncertain, and the authenticity and accuracy of the acquisition could not be guaranteed, it hastily disclosed the acquisition information. Due to the superimposition of factors such as its celebrity effect, it seriously misled the market and investors, attracted great attention from the market and the media, caused sharp fluctuations in the stock price of Wanjia Culture, and seriously disrupted the normal market order.

"Second Offense": False Records and Material Omissions in the Disclosure of Fundraising Plan Information

In its reply to the inquiry letter on January 12, 2017, Longwei Media stated that it had obtained 1,499.9 million yuan in pledged financing from financial institutions, which was inconsistent with the actual situation that China CITIC Bank planned to provide 3 billion yuan in financing to Longwei Media in its financing plan.

In its reply to the inquiry letter on January 12, 2017, Longwei Media disclosed the payment method of the funds as a definite step and a definite amount, and failed to fully disclose that the payment method of the funds would be adjusted according to the approval status of financial institutions.

Longwei Media failed to clearly disclose the huge uncertainty in the financing from financial institutions in the announcement, resulting in material omissions.

"Third Offense": Failure to Timely Disclose the Failure to Reach Financing Cooperation with Financial Institutions

On January 12, 2017, Longwei Media, through Wanjia Culture, stated in its reply to the inquiry letter from the Shanghai Stock Exchange (SSE) that the approval process for the pledged stock financing from financial institutions was expected to be completed by January 31, 2017. Evidence shows that on January 23, 2017, Wanjia Group and Longwei Media were aware that their financing plan with China CITIC Bank Hangzhou Branch had not been approved by the head office of China CITIC Bank. As of January 31, 2017, Longwei Media had not reached financing cooperation with any financial institution.

"Fourth Offense": Material Omissions in the Disclosure of Reasons for Failure to Complete Financing Plan on Schedule

In the announcement disclosed by Longwei Media through Wanjia Culture on February 16, 2017, it attributed the failure to complete the financing plan on schedule to the failure of the financing approval by financial institutions, and failed to disclose the fact that Yinbixin had not prepared sufficient funds when the second installment of the equity transfer payment was due, resulting in material omissions.

"Fifth Offense": False Records and Misleading Statements in the Disclosure of Information on Promoting the Smooth Completion of the Transaction

On January 12, 2017, Longwei Media, through Wanjia Culture, stated in its reply to the inquiry letter from the SSE:

"If Longwei Media fails to obtain the pledged stock financing from financial institutions in a timely and full amount, Longwei Media will actively communicate with Wanjia Group to ensure the smooth completion of this transaction, and at the same time continue to seek pledged stock financing from other financial institutions."

Evidence shows that after the approval by China CITIC Bank failed, Longwei Media did not actively communicate with Wanjia Group and did not contact any other financial institutions to seek financing, resulting in false records and misleading statements in information disclosure.

According to Kong Deyong's interrogation transcript, after the failure of the financing approval by China CITIC Bank, the side of Longwei Media did not actively communicate with the side of Wanjia Group. On February 7, 2017, Huang Youlong sent his representative Zhao Zheng to directly negotiate with Kong Deyong on terminating the acquisition of controlling rights. At the same time, the interrogation transcripts of Huang Youlong, Zhao Zheng and others also indicated that after the financing plan of China CITIC Bank was not approved, no one from Longwei Media contacted other financial institutions again.

Penalty Results

The CSRC imposed the following penalties on Wanjia Culture and Longwei Media:

• Ordered to make corrections and given a warning
• Each was fined 600,000 yuan (the maximum penalty)

Penalties for relevant personnel:

• Kong Deyong, Huang Youlong, Zhao Wei and Zhao Zheng (Note: Zhao Wei's elder brother) were given a warning and each fined 300,000 yuan
• Huang Youlong, Zhao Wei and Kong Deyong were each subject to a 5-year ban from the securities market