New progress in the “mining machine gate” reporting incident! Huatie responded to the exchange’s inquiry: Who owns the 56,000 mining machines?

After Yibang International and Huatie Emergency "broke into the limelight", there has been new progress in the "mining machine gate" dispute.
Previously, the chairman of Yibang International made a real-name report on Huatie Emergency's suspected "three sins" including financial fraud, and more than 100 pages of public reporting materials, which made a long-standing contract dispute between the two listed companies completely public and triggered public opinion.
Subsequently, the incident continued to ferment as the two sides grappled with each other: the Shanghai Stock Exchange sent a regulatory work letter to Huatie Emergency, Huatie Emergency issued a clarification announcement "denying three consecutive allegations" and held a press conference overnight to indicate that the company had reported the case, Yibang International questioned and disclosed more evidence on its official public account, the Shanghai Stock Exchange sent an inquiry letter to Huatie Emergency, and the second press conference prepared by Yibang International was repeatedly postponed and temporarily cancelled.
On the evening of August 10, the Shanghai Stock Exchange issued an inquiry letter, requiring Huatie Emergency to respond and disclose information within 5 trading days. On the evening of August 17, the last day of the response deadline, China Securities Journal learned from Huatie Emergency that the company was originally supposed to issue a response announcement that evening, but after submitting it to the exchange, it was required to supplement and improve more details, and the disclosure was postponed until the evening of August 18.

Focus 1: To whom should the 56,000 mining machines belong?

The former partners are now at odds with each other over a Bitcoin mining machine sales contract.

In 2018, Xinjiang Huatie, a wholly-owned subsidiary of Huatie Emergency, purchased 80,000 cloud computing servers, also known as "Bitcoin mining machines", from Ebang Communications, a subsidiary of Ebang International, for a total of 403 million yuan, at 5,040 yuan per unit.

Hu Dong, chairman of Ebang International, said that since the delivery of 80,000 mining machines, Xinjiang Huatie still has 282 million yuan of outstanding payments. Huatie Emergency said that the company actually only received 24,000 mining machines, and the remaining 56,000 were signed for by a third-party company, Zhejiang Newbo, and did not belong to the company. Ebang did not buy it, and said that "Zhejiang Newbo" was the company of Hu Yueting, the sister of Hu Danfeng, the actual controller of Huatie Emergency.

Hu Danfeng, the actual controller of Huatie Emergency, said at a briefing on the evening of August 9 that his sister Hu Yueting did have a stake in Zhejiang Newbo ten years ago, but later the shares were transferred and had no connection with Huatie Emergency. Chen Jiacao, the attorney for Huatie Emergency, believes that the focus of the dispute is who bought the mining machines. The batch of mining machines was not purchased by Xinjiang Huatie, and Ebang's so-called doubts have no factual and legal basis.

On August 10, Yibang Communications published an article on its official WeChat public account to refute that the actual controller of Zhejiang Newbo is still Hu Yueting, and stated that Yibang will release other evidence in due course.

Subsequently, the Shanghai Stock Exchange stated in its inquiry letter on the evening of August 10 that it required Huatie Emergency to disclose the process and reasons for the transactions between Zhejiang Newbo and Yibang Communications after the company signed the server purchase and sale contract with Yibang Communications, as well as whether there is an affiliated relationship between Zhejiang Newbo and the listed company and its actual controller, and whether Zhejiang Newbo signed for the relevant servers on behalf of the listed company?

On the evening of August 18, Huatie Emergency responded to the inquiry letter. In short, Huatie had previously settled the payment for 24,000 mining machines it had received, but in the process of leasing the mining machines, due to the decline in Bitcoin prices and the high power consumption of the mining machines delivered by Ebang Communications, Huatie suffered serious losses. Therefore, Huatie did not buy the remaining 56,000 mining machines and informed Ebang that it would not pay the money and would not ship the goods.

However, Ebang needed to continue selling the remaining 56,000 mining machines. Hu Danfeng introduced Ebang Technology to Zhejiang Newbo shareholder Yu Zhongliang through Hu Yizhou. Eventually, Ebang Technology delivered 56,000 servers to Zhejiang Newbo. This was proved by the certificate of Zhang Hao, director of Ebang Technology and contract handler, the arrival receipt confirmed by Zhejiang Newbo, Zhang Hao's transcript in the police, and the recording of Hu Dong, the actual controller of Ebang. At the same time, Chen Baoqing, the handler of Zhejiang Newbo, also admitted in the police transcript that he had received 56,000 servers.

As for the role of Hu Danfeng's sister Hu Yueting, Huatie Emergency said that after verification, Hu Yueting confirmed that she had no affiliation with Newbo Industrial. The company interviewed Chen Baoqing, the person in charge of Zhejiang Newbo. Chen Baoqing confirmed that the 56,000 servers were purchased for the needs of Newbo Industrial and received by him personally, and there was no situation of signing for them on behalf of the listed company.

Focus 2: Where did the profits from more than 4,000 bitcoins go?

Another key point that has attracted widespread attention in this case is that Ebang International mentioned in the report that one of the Bitcoin mining pools, miner numbers, Bitcoin income and Bitcoin wallet addresses corresponding to the mining machines purchased by Xinjiang Huatie all belong to a mobile phone number. The user of this number is Hu Danfeng's wife Pan Qian. There are five Bitcoin wallet addresses corresponding to the above mobile phone number. A query through the Bitcoin blockchain browser shows that the number of Bitcoins obtained from mining reached 4418.895748.

Yibang International said that the market value of this batch of bitcoins was about 300 million yuan at the time, and later the highest market value exceeded 1.8 billion yuan.

On the evening of August 9, Hu Danfeng said at a briefing on Huatie Emergency, "Anyone can register for the Bitcoin mining pool. It is an observation account used to check whether the equipment is running, while the mined Bitcoin goes directly to the wallet. Ebang has confused the concepts. We get a fixed return, and the processing of Bitcoin belongs to the lessor. There is no necessary correlation between the two accounts."

In a statement published on August 10, Ebang Communications stated that the mining account mentioned by Hu Danfeng was registered with Pan Qian's mobile phone number, and the five Bitcoin addresses involved in the case could only be filled into Pan Qian's mining account after passing Pan Qian's mobile phone verification code. At the same time, in 2019, the above-mentioned Bitcoin addresses were also forwarded to other Bitcoin addresses at the same time. This proves that the above Bitcoin addresses belong to the same Bitcoin wallet, and the same Bitcoin wallet can only belong to one person.

Ebang Communications also pointed out that the above-mentioned Bitcoin account was used to pay the electricity bills of Huatie Emergency’s mining machines, and attached some WeChat chat screenshots as "evidence."

In its inquiry letter, the Shanghai Stock Exchange also required Huatie Emergency to disclose whether the actual controller of the listed company and his spouse hold or have held Bitcoin since 2018, and to explain whether the actual controller and his spouse have engaged in any behavior that infringes upon the interests of the listed company.

Huatie Emergency responded that Xinjiang Huatie is the lessor of the mining machines and calculates and collects rent from customers. As the holder of the mining equipment, it needs to check the income and operating conditions generated by the mining machines. The wallet address under Pan Qian's account is provided by the mining machine operator. The operator collects the bitcoins mined by the mining machines and then uses the bitcoins or converts the bitcoins into cash to pay the relevant fees. The remaining income belongs to the lessee.

Huatie Emergency also stated that since 2019, the company no longer operates the Bitcoin "mining machine" leasing business, and the Bitcoin mining pool account was subsequently cancelled. Hu Danfeng and his spouse Pan Qian have not held Bitcoin since 2018, and there is no behavior of infringing the interests of the listed company by misappropriating the Bitcoin of the listed company.

A Bitcoin mining machine practitioner told China Securities Journal that the disputed issue of mining machine ownership should be whoever paid for the mining machine, and who should own the benefits generated by the mining machine. There needs to be a legal basis. "A listed company bought a batch of equipment, which is an asset, but it generated benefits in the process. Who should own the benefits? If it is a trusteeship, an agreement must be reached with the trustee beforehand. Fixed assets and the benefits generated by them are two different concepts."

Focus 3: Is the disclosure of more than 30 million yuan in custody fees a violation of regulations?

According to the report from Ebang International, from June to November 2018, Xinjiang Huatie and its affiliated individuals and supplier Hefei Keming paid a total of 54.9981 million yuan in mining machine custody fees on behalf of Xinjiang Huatie. Xinjiang Huatie affiliated individuals such as Yang Tao paid a total of 31.3567 million yuan in custody fees to Hong Jiajun, totaling 86.3548 million yuan. However, the custody fees disclosed to the public were only 54.6379 million yuan, which understated the cost by 31.7169 million yuan, and was suspected of financial fraud.

In this regard, Hu Danfeng stated that after Xinjiang Huatie entered the field of mining machines, the company's employees did participate in the buying and selling of Bitcoin. This matter has nothing to do with Huatie's emergency response. The account transactions between the company's employees and the mining machine hosting company were just transactions between them regarding Bitcoin and had nothing to do with Xinjiang Huatie's electricity bill payment.

Yibang stated that the payment of electricity bills by the "several employees" mentioned by Hu Danfeng was carried out under the authorization of Hu Danfeng, and the relevant payment represented Huatie Emergency rather than an individual act. It also attached screenshots of WeChat chats and payment details in the official account article.

In its inquiry letter, the Shanghai Stock Exchange required Huatie Emergency to make additional disclosures: whether the relevant parties mentioned in the media reports had ever paid custody fees to the custodian, and the reasons and specific amounts of the custody fees they paid; whether the relevant parties paid the custody fees on behalf of the listed company, and whether there were financial transactions between the relevant parties and the listed company and its related parties; the specific amount of custody fees incurred by the listed company in 2018, the corresponding custodian, and whether there was any understating of custody fees.

Huatie Emergency said that the expenses of 54.6379 million yuan were correct, but 8.5865 million yuan of it was the proceeds from the sale of bitcoins by company employees such as Yang Tao. Chen Baoqing used these people's mobile phone numbers to register bitcoin accounts and bound their bank cards. He transferred the bitcoins in their accounts to their bitcoin accounts and sold them. The money from the sales was returned to the bound bank cards. Chen Baoqing then asked them to use the money to pay the electricity bills. The recipient was a supplier of Xinjiang Huatie, which had nothing to do with the company and its affiliates.

As for the rest of the money, the individuals involved are not employees of the company, but friends of Chen Baoqing. The money was used to pay the related fees for Chen Baoqing's custody fees. The funds came from other third parties and had nothing to do with the company and its affiliates. The company did not understate any custody fees.

I wonder if this belated clarification reply letter from Huatie Emergency will convince Ebang Communications, which was ready to reveal more information and almost held a second press conference to provide evidence but temporarily canceled it because "the government intends to coordinate negotiations between the two parties"?