Successive disclosure of scandals in connected transaction and insider dealing have overshadowed Foshan Lighting. Shenzhen Stock Exchange has recently  criticized Foshan Lighting for violation of the rules of connected transaction, connected investment, connected guarantee and connected financial incentive.

It is found out that during the period between 2009 and 2011, Foshan Lighting carried out connected transactions with Swanki (Foshan) Electric Corporation, zlamp(foshan)co., ltd.and Lightultra (Shanghai) Electronic Corporation, all of which are controlled by the son of Foshan Lighting’s president Zhong Xincai. The transactions involved value of 53.0281 million, 75.7819 million and 86.0761 million yuan, respectively. However, Foshan Lighting did not unveil every transaction with temporary announcements and regular reports.

Foshan Lighting released 20 announcements together on August 2^nd of this year, as a way to make up for the delay of disclosure which should have been done back on July 13^th. These announcements have bring the company’s “ related family” to light, involving Zhong Xincai’s elder son, second son, younger brother, sister-in-law and mother-in-law. Aforementioned Swanki (Foshan) Electric Corporation and Lightultra (Shanghai) Electronic Corporation were set by Zhong Xincai’s elder son Zhong Yongliang, while his second son holds a 95% stake of zlamp(foshan)co., ltd..

In addition to connected transaction violation, Foshan Lighting is involved with violation of three connected investments. According to regulators, Foshan Lighting set Qinghai FoZhao Lithium Energy Development Co., Ltd(hereinafter referred as FoZhao Lithium Energy) with 29.23 million yuan in 2009, jointly with affiliated person Hongkong Taiji Rare Element Technology Development Co.,Ltd. and a few other shareholders, and QinghaiFoZhao Lithium battery cathode material Co.,Ltd(hereinafter referred as Fozhao Material) with 25.5 million yuan in 2010, jointly with Qinghai Weili New Energy Materials Co.,Ltd. Both establishments did not go through review process until July 12 this year. Back on May of 2010, Fozhan Lithium Energyand and its affiliate person Qinghai Weili transferred their respective stake of 30% and 20% of Qinghai Yanhu Fozhao Lanke LithiumCorporation (hereinafter referred as Yanhu Fozhao), which did not go through timely review process either.

In addition, the company’s controlling subsidiary Foshan Materials provided a loan of 25 million yuan to FoZhao Lithium Energyon January 5^th of 2010 and offered guarantee of 40 million yuan in value for Yanhu Fozhao on November 5^th the same year. Both activities did not go through review process or disclosure.

Regulatory authorities points out that aforementioned activities violated the related rules of CSRC(China Securities Regulatory Commission.  As the company’s president Zhong Xincai failed to perform his responsibility and violated related rules, Shenzhen Stock Exchange circulated a notice of criticism onFoshan Lighting and Zhong Xincai.