On the evening of December 1st, Shenzhen Zowee Technology Co., Ltd. (hereinafter referred to as “Zowee Technology”) issued an announcement stating that its controlling shareholder and actual controller Xia Chuanwu was arrested by the Shenzhen Public Security Bureau on December 1st, approved by the Intermediate People’s Court of Shenzhen, for suspected insider trading and market manipulation. As a result of this news, on December 4th, Zowee Technology’s stock price plummeted by 6.97%.
The announcement states that Xia Chuanwu has resigned from the positions of General Manager and Chairman of the company in May 2018 and August 2018 respectively. After resigning, he does not hold any specific position in the company. Currently, the production and operation of the company and its subsidiaries are normal, with steady progress in various businesses. This matter will not have a significant impact on the daily production and operation activities of the company. The management team will continue to promote various production and operation activities according to established development strategies.
According to the information, Xia Chuanwu was born in 1973. He started working at Zowee Technology in 2004 and became the actual controller of Zowee Technology in early 2014. Xia Chuanwu’s arrest is mainly related to insider trading during the company’s restructuring period in 2018.
On May 14, 2018, Zowee Technology applied for a stock trading suspension due to the planning of a major asset restructuring. The company plans to acquire 100% equity of Shenzhen Tengxin Precision Adhesive Products Co., Ltd. through issuing shares and cash payment, with a transaction price of 630 million yuan (approximatly ＄88 million). At the same time, Zowee Technology intends to raise funds from no more than ten specific investors such as Xiaomi Technology (Wuhan) and Optics Valley Assets, totaling 473 million yuan (approximatly ＄66 million)at an extremely high premium of up to 5.4 times.
Xia Chuanwu, as an insider with access to confidential information, sold 11.5527 million shares of unrestricted circulation of Zowee Technology through block trades during the sensitive period of Zowee Technology’s planned termination of restructuring. The total amount from the sale was 112 million yuan (approximatly ＄16 million), accounting for 1.99% of Zowee Technology’s total share capital.
Although he successfully cashed out, Xia Chuanwu still couldn’t escape regulatory punishment. On May 26, 2021, Xia Chuanwu’s spouse Wei Shuting received the “Administrative Penalty Advance Notice” issued by the China Securities Regulatory Commission (CSRC). According to calculations, Xia Chuanwu’s illegal gains amounted to 21.3084 million yuan (approximatly ＄3 million) due to his sale of Zowee Technology stocks, which constituted insider trading as described in Article 202 of the Securities Law of 2005. In accordance with relevant laws and regulations, the CSRC decided to confiscate Xia Chuanwu’s illegal gains of 21.3084 million yuan and impose a fine of the same amount.
Due to suspected securities market manipulation, Xia Chuanwu was arrested by the Ningbo Public Security Bureau on October 28, 2020. All shares held under his name in Zowee Technology were also judicially frozen by the Ningbo Public Security Bureau. The frozen share quantity is 97.3172 million shares, accounting for 17.16% of the total share capital of Zowee Technology.
In November this year, the 25 million shares of stock held by Xia Chuanwu were publicly auctioned and sold for a transaction price of 132 million yuan (approximatly ＄18 million). Currently, the aforementioned shares that were subject to judicial auction have completed the transfer registration. After the auction, Xia Chuanwu’s shareholding ratio decreased from 17.16% to 12.76%, but he still remains as the controlling shareholder and actual controller of Zowee Technology.
According to public information, Zowee Technology was established in 2004 and went public in 2010. Its main business is the research, development, manufacturing, and sales of network communication, consumer electronics, and smart hardware products. It primarily cooperates with leading domestic companies in the ODM/JDM/EMS modes. The network communication products include routers, 5G CPEs, Bluetooth gateways, mobile broadband devices, etc. Consumer electronics products include smartphones and portable power banks. Smart hardware products include smart wearable devices, smart cameras, and connected car intelligent terminals. The company’s core customers include Huawei, Xiaomi, 360 Mobile Security Limited (Qihoo), Samsung Electronics Co., Ltd., Opple Lighting Co., Ltd., etc.
From the historical business performance of Zowee Technology, it can be seen that it is relatively poor. Since its listing in 2010, the company has accumulated a total of 1.838 billion yuan (approximatly ＄0.26 million) in equity financing and achieved a cumulative net loss attributable to the parent company’s shareholders of 765 million yuan (approximatly ＄107 million). Among them, in the past nine years, the company has incurred losses in seven annual net profits after deducting non-recurring gains and losses.
In the first three quarters of this year, Zowee Technology achieved operating revenue of 1.387 billion yuan (approximatly ＄0.2 billion), a decrease of 87 million yuan compared to the same period last year. The net profit was a loss of 189 million yuan (approximatly ＄26 million), an increase in losses by 414.58% compared to the same period last year.