A dramatic cross-sector acquisition worth 1.087 billion yuan and a subsequent convertible bond issuance of 817 million yuan, backed by inflated financial reports, have culminated in criminal prosecution for a Shenzhen-listed company.

The case traces back to a 2015 decision by Sichuang Zhilian Technology Co., Ltd. (SZSE: 300078, formerly known as Sichuang Yihui Technology Co., Ltd.). The electronic anti-theft tag maker, then operating as Zhongrui Sichuang, acquired the smart healthcare firm Yihui Technology for 1.087 billion yuan in cash, aiming to bridge its IoT business with the medical sector.

The Hangzhou Municipal People's Procuratorate has formally indicted the company, its former chairman Zhang Lizhong, and six other executives at the time on charges of fraudulent securities issuance and failure to disclose important information as required by law.

The cross-sector gamble began in April 2010, when the company listed on the ChiNext board as Zhongrui Sichuang, specializing in EAS and RFID products. By 2015, with China's medical informatization market growing at over 20% annually, the company acquired Yihui Technology, which posted 210 million yuan in revenue in 2014, to create a dual-main-business structure of commercial intelligence and smart healthcare.

However, the anticipated synergies failed to materialize. Yihui Technology's revenue declined steadily due to intense competition and business adjustments. From January to October 2024, its revenue stood at just 111 million yuan with a net loss of 316 million yuan. For the full year 2024, the smart healthcare segment generated only 170 million yuan in revenue, accounting for 24.66% of total revenue, while the commercial intelligence business contributed 501 million yuan, or 72.50%.

More critically, Yihui Technology became the vehicle for financial fraud. The China Securities Regulatory Commission's Zhejiang bureau found that the company, through its subsidiary, engaged in fictitious transactions with related parties including Hangzhou Wenran, Shanghai Xifan, and Shenzhen Yulin, while improperly recognizing revenue from some customers ahead of schedule. In 2019, revenue was inflated by 34.93 million yuan and profit by 33.02 million yuan, representing 20.03% of total pre-tax profit. In 2020, the figures reached 96.47 million yuan in inflated revenue and 83.94 million yuan in inflated profit, or 67% of pre-tax profit. These false figures were incorporated into the convertible bond prospectus and the 2019 and 2020 annual reports.

Armed with this fabricated financial data, the company completed its "Sichuang Convertible Bond" issuance between 2020 and 2021. The registration statement was submitted in July 2020, approved by the Shenzhen Stock Exchange in October, registered with the CSRC in December, and issued in February 2021, raising 817 million yuan.

This was not an isolated incident of disclosure violations. In 2012, a company supervisor received a regulatory letter for trading shares during a blackout period. In 2016, a director was formally criticized for failing to promptly disclose a material litigation matter. In October 2021, the Zhejiang bureau issued a warning letter for failing to disclose that a major shareholder had occupied 338 million yuan of company funds.

On September 20, 2022, the CSRC launched a formal investigation. Less than two years later, on January 8, 2024, the Zhejiang bureau issued an administrative penalty, ordering corrective measures, issuing a warning, and imposing fines totaling 85.7 million yuan on the company. Former chairman and general manager Zhang Lizhong was fined 7.5 million yuan and barred from the market for ten years. Former CFO Wang Lin and former board secretary Sun Xinjun were each fined 3 million yuan, while former supervisory board chairman Wang Jun was fined 500,000 yuan. Combined penalties for the company and four responsible individuals reached 99.7 million yuan.

Where to begin

Just eighteen months after the administrative penalties, the case escalated to criminal prosecution. On August 14, 2025, the company received a notice from Hangzhou police to collect evidence, marking the start of a criminal investigation. By December 31, the case was transferred to the procuratorate. On September 2, 2026, the Hangzhou Municipal People's Procuratorate formally filed charges.

The indictment names the company under its former legal name and seven defendants: Zhang Lizhong (former chairman and general manager), Xue Qiwei (former deputy general manager of the Yihui Technology subsidiary), Wang Jianwei (former financial advisor to shareholder Hangzhou Sichuang Yihui Group), Peng Jun (former chairman of Yihui Technology), Wang Lin (former CFO), Sun Xinjun (former vice chairman, board secretary, and deputy general manager), and Wang Jun (former supervisory board chairman and employee supervisor). Notably, several defendants, including Xue Qiwei and Peng Jun, came directly from Yihui Technology's core management.

The procuratorate alleges the company fabricated substantial false content in its prospectus for a large-scale public bond issuance, constituting fraudulent securities issuance, and that it provided false financial statements to the public causing investor losses under particularly serious circumstances, constituting the crime of illegally disclosing important information. The case is pending trial, and the final outcome will be determined by the court.

The aftermath and a return to roots

While criminal proceedings advanced, the company also took steps to unwind its failed diversification. In the first half of 2025, it implemented a major asset restructuring, selling Yihui Technology's 100% equity to Cangnan Shanhai Digital Technology Co., Ltd. The deal closed in August 2025, removing the subsidiary from consolidated reporting. On January 20, 2026, the company officially changed its securities abbreviation from "Sichuang Yihui" to "Sichuang Zhilian" and its legal name accordingly, citing a strategic pivot to "focus on IoT and reshape growth engines." The company stated that the "Yihui" reference no longer matched its primary business.

The financial legacy remains heavy. The company posted a 31.33% revenue decline to 691 million yuan in 2024 with a net loss attributable to shareholders of 502 million yuan. In 2025, revenue was 684 million yuan, down 0.94%, with a net loss of 67.23 million yuan, a year-on-year improvement of 86.59% primarily due to the divestiture of the loss-making Yihui Technology. However, loss reduction is not the same as returning to profitability.

In the first half of 2026, revenue fell 65.16% year-on-year to 190 million yuan, partly because the previous year's comparable period included smart healthcare revenue and 293 million yuan from property disposals. The net loss narrowed by 55.46% to 23.09 million yuan. As of the end of June 2026, the parent company's cumulative uncovered losses stood at approximately 2.428 billion yuan.

The market has taken note. By September 10, 2026, shares closed at 2.83 yuan, down about 11% from the 3.17 yuan closing price on the announcement date of September 2, valuing the company at roughly 3.16 billion yuan.

Industry observers view this as a cautionary tale. From the 1.087 billion yuan acquisition to the 817 million yuan convertible bond backed by inflated accounts, from the rebranding to the eventual divestiture, the company's decade-long trajectory serves as an instructive failure in cross-sector M&A within China's capital markets. The case also highlights the complete chain of legal consequences, from administrative sanctions to criminal prosecution, and underscores that changing a company's name does not erase its legal liabilities.