March 20 marked a significant setback for North Long Dragon New Materials Tech Co., Ltd. (301357) and its sponsor, Gf Securities Co., Ltd. (000776). On that day, North Long Dragon received both a regulatory letter from the Shenzhen Stock Exchange and an administrative supervision decision from the Shaanxi Securities Regulatory Bureau, highlighting serious issues in its 2024 annual report, including revenue recognition across periods and internal control deficiencies.
The timing of these penalties is particularly delicate and awkward: they come just over two months after North Long Dragon announced plans for a major asset restructuring and a mere three months after Gf Securities issued a 2025 periodic on-site inspection report declaring "no abnormalities." From a post-IPO performance slump to financial irregularities during a critical restructuring phase, questions arise about the effectiveness of Gf Securities' role as a continuous supervision sponsor.
According to the Shaanxi bureau's decision, North Long Dragon's violations are clear and specific. First, revenue recognition issues across accounting periods led to inaccurate disclosures in the 2024 annual report. Second, significant internal control weaknesses were identified, including failure to establish product acceptance rules based on actual business categories and lax review of acceptance documents.
More alarmingly, the investigation uncovered instances of "employees improperly handling confirmation letter responses for a certain client." In auditing and financial compliance, the independence of confirmation letters is a fundamental principle. Employee interference in response processes not only exposes the company's ineffective internal controls but also raises legitimate doubts about the authenticity of its financial data.
In response, regulators ordered corrective actions against the company and issued warning letters to Chairman Chen Yue, General Manager Xiang Hua, and former Financial Director and Board Secretary Meng Haifeng.
Notably, North Long Dragon only announced its plans for a major asset restructuring on January 8, 2026. The regulatory focus on 2024 financial discrepancies now casts a shadow over these ongoing capital operations.
The situation is particularly embarrassing for sponsor Gf Securities. As North Long Dragon's IPO sponsor, Gf Securities' continuous supervision period extends until the end of 2026. This means the 2024 financial violations occurred entirely under its watch. However, Gf Securities' oversight appears to have been severely lacking. Just before regulatory penalties were imposed, on January 15, 2026, Gf Securities had published its 2025 Periodic On-site Inspection Report, giving a "no objection" assessment of North Long Dragon's information disclosure and internal controls.
This raises pointed questions: What were Gf Securities' supervision staff doing during the on-site inspection just three months prior? If they conducted proper checks, why did they overlook clear internal control failures like improper employee handling of confirmation letters? If they did not perform adequate checks, what basis did they have for issuing a "no objection" report?
This pattern of regulatory findings immediately following a clean bill of health from the sponsor suggests that Gf Securities' on-site inspections may be superficial, reduced to a mere formality. If such obvious internal control weaknesses go undetected, the continuous supervision function likely fails its core purpose of risk prevention and quality assurance.
This is not the first misstep for Gf Securities on the North Long Dragon project. As early as January 2025, the China Securities Regulatory Commission (CSRC) issued a warning letter to Gf Securities because North Long Dragon reported a loss in the same year it went public, signaling a sharp performance decline.
North Long Dragon listed in April 2023 and experienced an immediate performance downturn. Its 2023 annual report showed operating revenue of 135 million yuan, down 46.09% year-on-year, with net profit attributable to shareholders plummeting 85.61% to 11.54 million yuan. Even more starkly, net profit after deducting non-recurring items showed a loss of 7.11 million yuan, compared to profits of 105 million yuan and 77.98 million yuan in 2021 and 2022, respectively.
Earlier, the company had also been cited by regulators for inaccurate performance forecasts. Despite repeated regulatory sanctions against the company during the continuous supervision period, Gf Securities' subsequent oversight work does not appear to have become more rigorous. Notably, in November 2025, North Long Dragon announced a change in its sponsor representatives, raising market speculation about whether this "changing of the guard" is linked to emerging risks.
Broadening the perspective, Gf Securities seems to exhibit a pattern of internal control issues within its investment banking business. From receiving severe penalties for inadequate due diligence in the Kangmei Pharmaceutical case to recent violations involving analysts spreading inaccurate information and employees engaging in unauthorized sales practices, repeated compliance failures prompt serious questions. After multiple regulatory sanctions, has the firm truly strengthened its internal control defenses in investment banking?
Under the registration-based system, which centers on information disclosure, the "gatekeeper" responsibility of intermediaries is paramount. If on-site inspection reports become meaningless paperwork, failing to catch even basic errors like improper handling of confirmation letters, it not only harms investor interests but also erodes market trust. For Gf Securities, the North Long Dragon case is not just a regulatory warning but a severe test of its professional standards and the robustness of its internal controls.