More than a year after the IPO application was withdrawn, both the issuer and its sponsor have received regulatory penalties. On August 21, the Shenzhen Stock Exchange issued a supervision letter, imposing written warnings on Hunan NaiPu Pump Co., Ltd. and related parties for violations during its ChiNext IPO application process.

At the same time, Western Securities Co.,Ltd. (002673.SZ), the sponsor for NaiPu Pump's ChiNext IPO, along with its two sponsor representatives Feng Linsong and Qu Xiaolong, faced supervisory measures including interview talks and written warnings due to multiple failures in their duties.

As IPO reviews become more stringent and the responsibilities of market "gatekeepers" are reinforced, Western Securities Co.,Ltd. reported investment banking revenue of approximately 390 million yuan in 2025, a year-on-year increase of 42%. The question remains whether this counter-trend growth on paper can withstand dual scrutiny from regulators and the market.

NaiPu Pump Receives Regulatory Letter After Withdrawing IPO; Western Securities Questioned for Inadequate Verification

According to the prospectus, NaiPu Pump was established in December 2004, headquartered in Hunan, and converted to a joint-stock company in April 2015. The company primarily designs, researches, produces, sells, and services industrial pumps and mobile emergency water supply and drainage equipment.

As a typical manufacturing enterprise, NaiPu Pump viewed entering the capital market as a crucial step to break through production capacity bottlenecks and achieve leapfrog development. In June 2022, after a counseling period lasting over 30 months, NaiPu Pump formally submitted its IPO application to the Shenzhen Stock Exchange.

From a fundamentals perspective, from 2019 to 2021 and the first half of 2022, NaiPu Pump maintained rapid growth in operating scale, with revenue of 360 million yuan, 420 million yuan, 515 million yuan, and 225 million yuan, respectively. Net profit attributable to the parent company was 45.1426 million yuan, 64.0078 million yuan, 71.2428 million yuan, and 21.6564 million yuan.

More than six months after being accepted by the Shenzhen Stock Exchange, NaiPu Pump successfully passed the listing review in February 2023. However, after passing the review, the company failed to submit for registration, and the process stalled. It was not until March 2025 that the company voluntarily withdrew its listing application, marking the complete failure of its IPO.

Withdrawal is often seen as the end of the story by outsiders. But for regulators, it is precisely the starting point for retroactive accountability. NaiPu Pump received the supervision letter on August 21, 2026.

The main issues were twofold. First, the company failed to disclose irregularities in internal controls related to revenue recognition. In some industrial pump business projects, contracts included clauses for final acceptance testing or trial operation after installation and commissioning, yet the company still used installation and commissioning acceptance forms as the acceptance evidence. It did not adequately explain the reasonableness of these revenue recognition bases, and internal controls over revenue recognition were non-compliant. Additionally, there were irregularities in revenue recognition documents, such as logistics transportation times being earlier than shipping order times.

Second, the company failed to disclose irregularities in internal controls related to selling expenses. These included: some selling expense entry documents failing to reflect the actual use of funds; some travel and business entertainment expenses lacking supporting documents proving the time of expense occurrence; inaccurate timing for recording some selling expenses; and improper management of documentation proving business conducted with sales service providers.

Furthermore, internal controls related to R&D, including the identification of R&D personnel, R&D hours accounting, and R&D activity management, were non-compliant, and the disclosed information was inconsistent with actual conditions.

As a result, NaiPu Pump, its actual controller and chairman Geng Jizhong, general manager Zhou Hong, actual controller and director and deputy general manager Geng Wei, and financial director Zeng Xiangqian were all issued written warnings.

The sponsor, Western Securities Co.,Ltd., as the project's "gatekeeper," also received a supervision letter. Investigations found that Western Securities Co.,Ltd. did not pay sufficient attention to and prudently verify the non-compliant internal controls over revenue recognition and selling expenses at NaiPu Pump. Additionally, the firm's verification of sales service providers, R&D investment, and reported matters was inadequate.

Feng Linsong and Qu Xiaolong, as the project's sponsor representatives, were issued written warnings for four violations. Specifically, they failed to pay sufficient attention to and prudently verify the issuer's non-compliant internal controls over revenue recognition and selling expenses, and failed to prudently verify the capital flows of some sales service providers and the relationships between them.

Other violations included failing to pay sufficient attention to and prudently verify the issuer's R&D-related internal controls, including R&D personnel identification, R&D hours accounting, and R&D activity management, resulting in imprudent verification opinions; failing to fully verify reported matters, leading to inaccurate verification conclusions; and deficiencies in confirmation letter procedures and incomplete record documentation.

Investment Banking Business Grows Over 40%, Yet Sponsored Projects Face Repeated Setbacks

In fact, since 2026, Western Securities Co.,Ltd. has encountered multiple problems in its investment banking business. In May 2026, the Jiangxi Securities Regulatory Bureau issued two penalty notices: Su Huafeng was fined 900,000 yuan and Shi Zhe yuan was fined 1 million yuan. The specific reason was that the two individuals illegally held shares of a company planning to go public through entrusted shareholding arrangements.

According to reports, multiple sources of information corroborate that the two individuals were employees of Western Securities Co.,Ltd., both serving as signing sponsor representatives for the 2021 STAR Market IPO of Infosec Technology (688201.SH). That IPO raised over 600 million yuan, with Western Securities Co.,Ltd. earning more than 40 million yuan in sponsorship and underwriting fees.

However, immediately after the project was completed, Su Huafeng and Shi Zhe yuan quickly acquired Infosec Technology shares through a nominal holder agreement. This covert investment was only returned at par by the nominal holder in September 2025.

Additionally, on June 29, 2026, the Shanghai Stock Exchange issued regulatory warnings to Western Securities Co.,Ltd. sponsor representatives Zhang Suxian and He Si for serious dereliction of duty in the Infosec Technology convertible bond project.

Investigations revealed that in 2025, Infosec Technology planned to capitalize 70.8333 million yuan in R&D expenditures. This matter directly affected the convertible bond issuance condition requiring "average distributable profit over the past three years sufficient to pay one year's interest on the company bonds." The sponsor should have prudently verified the technical feasibility of R&D, support from orders on hand, and consistency in accounting policy implementation. However, the special reply submitted was vague and lacked sufficient basis, failing to identify the risk of the company beautifying performance through improper accounting treatment.

After restatement, Infosec Technology's cumulative non-GAAP net profit from 2023 to 2025 was negative, meaning it essentially no longer met the issuance conditions. The project was withdrawn and terminated in April 2026. The signing certified public accountants for the same project, Li Chenglin, Li Chunyan, and Zhou Lijie (from Rongcheng), were also subject to regulatory warnings.

On July 28, 2026, the Jiangxi Securities Regulatory Bureau also fined Yu Weng Information and seven key responsible persons a total of 17.9 million yuan, formally determining that the company engaged in systematic financial fraud and information disclosure concealment in its STAR Market IPO application, constituting fraudulent issuance.

From 2020 to the first half of 2023, Yu Weng Information fabricated a cumulative 37.5885 million yuan in operating revenue and 14.1357 million yuan in total profit by arranging circular fund transfers to fabricate commercial cryptography product business and recognizing revenue prematurely when customers had not actually received goods. It also concealed the fact that actual controller Liu Guihua held 1.55 million shares on behalf of others, resulting in false records in the prospectus's shareholding structure and top ten shareholder information.

The sponsor for the Yu Weng Information IPO was Western Securities Co.,Ltd. The project was accepted by the STAR Market in December 2022 and terminated in June 2024 due to voluntary withdrawal. Notably, the signing sponsor representatives for the project were Gao Feng and Su Huafeng—the latter being the same person fined in May for illegal shareholding. Gao Feng had already received a regulatory warning from the Shanghai Stock Exchange in August 2022 for inadequate performance of sponsor duties and untimely reporting obligations in the Rong Xin Hui Ke IPO project.

Despite these issues, Western Securities Co.,Ltd.'s investment banking business has shown impressive growth on paper. In 2025, the company's investment banking revenue was approximately 390 million yuan, up 42% year-on-year, with gross margin improving by 31.34 percentage points year-on-year. This growth stands out against the backdrop of an overall slowdown in IPO pace and widespread pressure on the industry's investment banking business.

Since 2026, Western Securities Co.,Ltd. has sponsored 9 projects, with only the voluntary withdrawal of the Infosec Technology convertible bond project, representing a withdrawal rate of 11.11%.

Looking at specific projects: on March 18, 2026, Zu Xing New Materials (920078.BJ), exclusively sponsored and lead underwritten by the firm, was listed on the Beijing Stock Exchange, becoming the first Hunan A-share listed company in 2026. In April, Ying's Holdings advanced its Beijing Stock Exchange IPO to the listing sponsorship stage, with Western Securities Co.,Ltd. issuing the listing sponsorship report. On August 20, the private placement of Tianhe Defense (up to 700 million yuan), for which the firm served as sponsor, was registered with the CSRC.

However, the IPO projects of Shaanxi Shiyang Agricultural Science and Technology Co., Ltd. and Hunan Dingli Technology Co., Ltd. are currently under suspended review.

From a different perspective, Western Securities Co.,Ltd. achieved total revenue of 5.985 billion yuan in 2025, a year-on-year decrease of 10.84%, with net profit attributable to the parent of 1.754 billion yuan, a year-on-year increase of 24.97%. This means the investment banking revenue of 390 million yuan accounts for only 6.7% of total revenue, still a minor role.

Furthermore, as of the end of 2025, the company's investment banking division had 317 employees, a reduction of 41 compared to 2024. In contrast, the proprietary investment division led with revenue of 1.882 billion yuan, nearly five times that of investment banking. The wealth management division generated 1.277 billion yuan in revenue, with a year-on-year growth rate of 30.77%.

Zhi Peiyuan, vice chairman of the Investment Committee of Listed Companies under the China Investment Association, suggested that to boost the investment banking business, the company should focus on niche areas such as green finance and hard technology, which are supported by government policies. He also recommended establishing specialized service teams to deepen industry research, developing integrated "investment banking + investment" products, such as providing convertible bond and equity financing packages for tech companies, and implementing "project co-investment" mechanisms that allow investment banking teams to subscribe to a proportion of underwriting projects to enhance risk-sharing awareness.

For Western Securities Co.,Ltd., behind the impressive growth figures in investment banking lie frequent compliance violations and regulatory penalties that are eroding market trust. As the responsibility of "gatekeepers" continues to be reinforced, shifting from scale-driven to quality-driven growth may be more urgent than pursuing numerical growth.

What are your thoughts on sponsors being penalized for "verification failures"? Feel free to share your views in the comments section.