Analysis of the Financial Fraud Incident of Kangmei Pharmaceutical: Exploring the Motivation and Mechanism of Regulatory Inquiries

With the development of China's capital market, regulatory inquiries become an essential tool to ensure the market's stability and protect investors. This article delves into the underlying motivations, operational mechanisms, and ramifications of regulatory inquiries. To explain these concepts, it uses the financial fraud incident of Kangmei Pharmaceuticals as an example. The study also shows that regulatory inquiries improve the quality of information disclosure and market transparency because they force companies to explain and elaborate on certain matters. In the case of Kangmei Pharmaceuticals, regulatory inquiries over time led to the revelation of the company's elaborate schemes in the use of financial frauds which led to the involvement of the Securities and Futures Commission (SFC) in the investigation and prosecution of the case. However, there are still some issues that have to do with regulatory inquiries such as lack of enforcement and therefore there is a need to improve the mechanism and corporate governance. The purpose of this study is to offer policy suggestions that will help to improve the efficiency of regulation and strengthen the stability of the Chinese capital market in its entirety.