A Chinese company is suspected of listing its shares on the Jasdaq market by using a “backdoor listing” scheme under the pretense that it was acquired by Tokyo-based software developer Celartem Technology Inc., it has been learned.

The Securities and Exchange Surveillance Commission raided Celartem on suspicion it violated the Financial Instruments and Exchange Law by falsely announcing it had purchased Beijing Chengxin Nenghuan Technology Co., according to sources.

In reality, Celartem is believed to have come under the umbrella of the Beijing-based environment-related firm, the sources said.

The commission believes the unlisted Chinese company acquired Celartem in order to place the Japanese firm under its control to get its shares virtually listed on Jasdaq, they said.

Backdoor listing is a strategy where an unlisted company goes public by acquiring a company already listed on a stock exchange.

Celartem, which was listed on Jasdaq in 2001, announced in November 2009 that it would purchase Beijing Chengxin Nenghuan Technology and make it into a subsidiary.

The company said it would raise 1.5 billion yen in capital for the acquisition through a third-party allotment of new common shares.

After the announcement, Celartem’s share price rose more than five times in a year.

Generally, a parent company sends a number of its executives to its subsidiary in the event of an acquisition. However, Celartem dispatched only one director to Beijing Chengxin Nenghuan Technology, while the Chinese firm sent a chairman and two directors, the sources said.

The commission harbored suspicion regarding the two firms and conducted an investigation. They found that Celartem did not procure 1.5 billion yen for the acquisition, and is instead suspected of giving its shares to shareholders of the Chinese firm, according to sources.

One measure to regulate backdoor listings allows Jasdaq to delist a company if after it investigates the purchased listed company, it judges the firm will be unable to maintain its corporate management policies.

It is believed Celartem made the false announcement in an attempt to avoid such an investigation, the sources said.

“There is no evidence that we violated the Financial Instruments and Exchange Law,” a Celartem official said.

Source:http://business.asiaone.com/Business/News/Story/A1Story20120228-330544.html