In-depth investigation | Huatie Emergency's "mining machine business" is unclear. Why do the 4,418 bitcoins mined belong to a certain mobile phone user?

Source: Cailianshe

Reporter: Liu Ke, Wang Bin

A Bitcoin mining machine transaction connected Ebang International, one of the world's three largest mining machine manufacturers, and A-share listed company Huatie Emergency (603300.SH).

(Photo taken by Cailianshe reporter at the Yibang International press conference)

On August 8, Hu Dong, chairman of Yibang International, said at a press conference in Hangzhou that he had publicly reported to the regulatory authorities that "Huatie Emergency was suspected of serious information disclosure violations, serious financial fraud, and its actual controller Hu Danfeng and his spouse Pan Qian were suspected of huge embezzlement and hollowing out of the listed company's assets. I urge the regulatory authorities to seriously hold them accountable and effectively safeguard the legitimate rights and interests of small and medium-sized investors."

On August 9, after two days of repeated contact, Huatie Emergency's Secretary Guo Haibin told Cailianshe that "it is not convenient to accept interviews at the moment, and the company will respond in a unified manner later."

Before today's opening, Huatie Emergency issued a clarification announcement, saying that "after verification by the company and confirmation with the actual controller Hu Danfeng and his spouse Pan Qian, the company is not suspected of serious financial fraud, serious information disclosure violations, and the actual controller Hu Danfeng and his spouse Pan Qian are suspected of huge embezzlement and hollowing out of the listed company's assets."

In addition, Huatie Emergency also stated in the announcement that if relevant entities are suspected of violating the law, the company will report the case to the relevant departments and pursue legal responsibility for any behavior that interferes with the capital market.

The stock price of China Railway Emergency Company was closed at the lower limit at the opening, at 10.30 yuan, down 1.14 yuan, or 9.97%, with a transaction volume of 15.22 million yuan. The clarification announcement did not seem to provide sufficient support for the company's stock price.

(Photo taken by Cailianshe reporter at the Yibang International press conference)

Concerning the feud between the two, Cailian reporter found that behind this mining machine business, there is also the secret "gold rush history" of Huatie Emergency, the suspected affiliated company "Zhejiang Newbo", the wholly-owned subsidiary Xinjiang Huatie that was quickly sold, the "vest" company that took over the mining machine leasing business one day after its establishment, and the whereabouts of the 4,418 bitcoins that are unknown.

The secret mining machine business

The feud between Ebang International and Huatie Emergency originated from the fact that in the first half of 2018, Ebang Communications (a subsidiary of Ebang International) and Huatie Emergency's subsidiary Xinjiang Huatie (now renamed "Zhejiang Qirui") signed a sales contract for a total of 80,000 cloud computing servers with a total price of 403.2 million yuan.

Unexpectedly, half a year later, the Bitcoin market underwent a major adjustment. As the price of Bitcoin continued to fall, there was an oversupply of mining machines. Huatie Emergency made large provisions for asset impairment losses on mining machine-related assets and "discounted" the equity of its subsidiary Xinjiang Huatie.

In fact, Huatie Emergency's "mining machine business" is not just a simple investment failure. Due to its secrecy about this secret investment, Huatie Emergency was criticized by the Shanghai Stock Exchange in June 2020.

It is important to note that Huatie Emergency did not fully disclose information about this large-value purchase contract at the time. According to the disclosure rules of the exchange at the time, the amount of this Bitcoin mining machine purchase and sale contract worth more than 400 million yuan had reached the disclosure requirements of the Shanghai Stock Exchange.

As the counterparty of the transaction, Ebang Communication, which was preparing to go public on the US stock market in 2018, disclosed in its prospectus at the end of that year that its second largest customer in the first half of 2018 was a wholly-owned subsidiary of a Shanghai-listed company established in Xinjiang, whose main business was construction safety technology development, construction equipment installation and leasing, etc. This is consistent with the information of Xinjiang Huatie.

Ebang Communications' prospectus shows that 16.2% of its mining machine sales in the first half of 2018 were generated by a company in Xinjiang Huatie.

Cloud computing servers refer to Bitcoin business?

Xinjiang Huatie is a fundraising project of Huatie Emergency. In March 2018, Huatie Emergency, which had just completed a fundraising of 372 million yuan, decided to change the implementation entity, implementation location and some product composition of the fundraising project "Building Safety Support Equipment Leasing Service Capacity Upgrade and Expansion Project", that is, to take out 170 million yuan of funds to establish Xinjiang Huatie. After the change, most of the investment project products were purchased by Xinjiang Huatie. As a result, Huatie Emergency was involved in the "cloud computing server leasing" business.

It should be pointed out that the funding source of Xinjiang Huatie's cloud computing server leasing business is the loan from its parent company Huatie Emergency to Xinjiang Huatie. According to Huatie Emergency's announcement, from April to November 2018, the company provided Xinjiang Huatie with nearly 300 million yuan in funds, which is close to the net amount of funds raised by Huatie Emergency's initial private placement.

Interestingly, Huatie Emergency has not mentioned Bitcoin, digital currency, mining, etc. in its announcements. For example, in its 2018 annual report, the company referred to Bitcoin "mining machines" as "cloud computing servers." In an announcement released on January 31, 2019, Huatie Emergency described the reason for its losses as follows: "The market environment for server leasing business was good in the third quarter of 2018; but in the fourth quarter of 2018, the market environment changed unfavorably and the demand for servers in the market fell rapidly."

The "server market trend" mentioned by Huatie Emergency was consistent with the price trend of Bitcoin at the time. Taking May 7, 2018, the day the contract was signed, as an example, the price of Bitcoin was $9,665.58 per coin, but on October 1, the price was $6,653.30 per coin, a drop of 31.16%; and if the timeline is extended further, the price of Bitcoin reached $17,000 per coin in early 2018; at the end of 2018, the price of Bitcoin fell to $4,000 per coin. This year, the price of Bitcoin was on a downward trend, with a year-round drop of 76%.

For the buyer, Xinjiang Huatie, the fall in the price of Bitcoin will undoubtedly put corresponding pressure on it, and disputes are brewing.

Yibang International has not received payment for 56,000 mining machines

The crux of the dispute lies in the ownership of the 56,000 mining machines. After the purchase contract was signed on July 7, 2018, on the 30th of the same month, Huatie Emergency and Ebang Communications signed a supplementary contract, stipulating that Xinjiang Huatie would pay all purchase payments before October 20, 2018.

After the contract was signed, Ebang International began to deliver the goods under the contract. The four receipts and WeChat chat records provided by the company to the reporter showed that the company sent cloud computing servers to Inner Mongolia, Sichuan and other places from the end of May 2018 to the end of July, including: 25,000 E9.2 devices and power supplies to the Xilaifeng site in Wuhai, Inner Mongolia; 10,000 E9.2 devices and power supplies to the Baoshan site in Wuhai, Inner Mongolia; 16,000 E9.2 devices and power supplies to Muli County, Xichang, Sichuan; 14,000 E9.2 devices and power supplies to Butuo County, Xichang, Sichuan; WeChat work group chat records showed that around August 17, 2018, 15,000 E9.2 devices and power supplies were sent to the Jinkang Power Station in Kangding, Sichuan, completing the delivery of all servers. The above receipts were signed and confirmed by Huatie emergency staff Pei Jintai, Sui Hongyu, Zheng Bin and Liu Kai.

On the other hand, Huatie Emergency also began to fulfill its payment obligations, paying 80.64 million yuan on May 9, 2018, 10.08 million yuan on May 30, 2018, 25.20 million yuan on June 19, 2018, and 5.04 million yuan on July 18, 2018, totaling 120.96 million yuan. However, the remaining contract balance of 282.24 million yuan was not paid as agreed.

Subsequently, Yibang International began to collect the balance of the mining machine, but as the price of Bitcoin fell, the collection work did not go smoothly.

According to the recording provided by Ebang International to reporters, Hu Danfeng, the actual controller of Huatie Emergency, once told relevant staff of Ebang International: "I have lost 30% after buying the mining machine. Now I can only wait for the price of the currency to (rise). There is no (money) in the company's account. If I want to get the money, then I can only bankrupt Xinjiang Huatie."

As of October 25, 2018, Chen Baoqing (Note: Xinjiang Huatie’s mining machine business contact person) believed that the payment for 24,000 servers had been paid in full and that he no longer had the obligation to pay for the remaining 56,000 servers. He only agreed to sign and confirm the arrival of the 56,000 servers that had not been paid for on the "Arrival Receipt", and required the Yibang International staff to add the words "Zhejiang Newbo Industrial Co., Ltd." on the receipt. The Yibang International staff wrote "Zhejiang Newbo" on the receipt.

As a result, the two sides had a disagreement over the ownership of the 56,000 cloud computing servers. Xinjiang Huatie believed that the remaining 56,000 servers were signed for by it on behalf of Zhejiang Newbo and did not belong to it; but Ebang International disagreed.

What exactly is the company "Zhejiang Newbo" that is involved in this dispute? According to Tianyancha, Zhejiang Newbo was established in July 2010 with a registered capital of 147 million yuan. Currently, the legal representative of Zhejiang Newbo is Ye Shengming. In terms of equity structure, Lv Donghong holds 52.17% of the shares and is suspected to be the actual controller.

When it was established, Zhejiang Newbo had a registered capital of 30 million yuan, of which Hu Yueting, a natural person, contributed 27 million yuan and Tao Zhonghua contributed 3 million yuan. Subsequently, it increased its capital and expanded its shares. By April 2011, Hu Yueting disappeared from the list of Zhejiang Newbo shareholders, and seven new shareholders including Lv Donghong were added. Among them, Hu Yueting transferred his 47.95 million yuan equity to Lv Donghong.

Who is Hu Yueting? The prospectus of Huatie Emergency shows that the sister of the actual controller Hu Danfeng is also called "Hu Yueting".

Xinjiang Huatie's tens of thousands of mining machines were sold at a low price of 12.28 million in less than a year

Even though it only paid for 24,000 cloud computing servers, Huatie Emergency's predicament continued to worsen. With the sharp drop in Bitcoin prices, the Bitcoin "mining machines" that Huatie Emergency had bet on became a hot potato. As of the end of 2018, Xinjiang Huatie had lost as much as 158 million yuan, and Huatie Emergency wanted to quickly dispose of this part of the assets.

On January 15, 2019, Huatie Emergency issued the "Announcement on the Transfer of Equity of Subsidiaries and the Provision for Impairment of Fixed Assets", stating that "Huatie Emergency and its wholly-owned subsidiary Hangzhou Yuming Construction Equipment Co., Ltd. (hereinafter referred to as "Hangzhou Yuming") hold 99.5% and 0.5% equity of Huatie Heng'an (Note: "Huatie Heng'an" is "Xinjiang Huatie" in the text) respectively. In order to optimize the asset structure and improve the efficiency of asset utilization, Huatie Emergency, Hangzhou Yuming and Ye Gongle (Note: Ye Gongle was the legal representative and related party of Xinjiang Huatie Hangzhou Branch at that time) recently signed the "Equity Transfer Agreement" to transfer 100% of the equity of Huatie Heng'an to Ye Gongle at a transfer price of 59.75 million yuan."

It is worth noting that the book value of Xinjiang Huatie's assets at the end of 2018 was 240 million yuan, which means that in less than a year, Xinjiang Huatie's assets have shrunk by as much as 48%.

Xinjiang Huatie's first sale did not seem to go smoothly. The announcement showed that "on January 25, 2019, in view of the fact that the two parties had disagreements on the transaction price and other matters related to the transfer of Xinjiang Huatie's equity, and no consensus was reached after communication between the two parties, the two parties agreed to terminate the transaction."

In March 2019, Huatie Emergency announced again that the company's net asset value was reduced to 12.1 million yuan; in April 2019, Huatie Emergency made an asset impairment provision of 143 million yuan for Xinjiang Huatie, and transferred Xinjiang Huatie to Chen Wanlong for 12.28 million yuan based on net assets. In the same month, Xinjiang Huatie completed the industrial and commercial change registration, and its mining machine business was sold.

Regarding the transaction, Hu Dong, chairman of Ebang International, said at a press conference on August 8: "The price is obviously unreasonable. Even if calculated based on the market price of mining machines at the time, its fixed assets are far more than this amount."

According to the announcement of Huatie Emergency, this is a non-related transaction, and "the transaction price is fair and the evaluation is reasonable."

(Photo taken at Zhejiang Qirui by a reporter from Cailianshe)

After being sold, Xinjiang Huatie has been renamed "Zhejiang Qirui Machinery Equipment Co., Ltd." (abbreviated as "Zhejiang Qirui"). Its business scope has expanded beyond "cloud computing server leasing business" and its registered address has been moved from Kashgar, Xinjiang to Jianggan District (now Shangcheng District), Hangzhou, where Huatie Emergency is located.

Cailian reporter visited and found that Zhejiang Qirui's current registered address is a shared office space. The door of its office is closed and there is no one inside, with only some simple office supplies and furniture. Several tenants nearby told Cailian reporter, "The company name on the door has existed since 2019, but no one has ever come to work."

A Cailian reporter checked the Amap navigation and found that this place is only 3.1 kilometers away from the location of Huatieying Company.

(Photo of Zhejiang Qirui's registered address, taken by a reporter from Cailianshe)

Contradiction: Leasing mining machines or mining coins yourself?

For listed companies, key words such as mining machines and Bitcoin mining seem to be more "sensitive". After being questioned by the Shanghai Stock Exchange for information disclosure violations, Huatie Emergency acknowledged for the first time in its announcement on June 22, 2019 that its subsidiary Xinjiang Huatie's so-called cloud computing servers, namely Bitcoin mining machines, were Avalon A841 and Ebit E9.2, produced by Canaan Creative and Ebang Communications respectively.

However, Huatie Emergency still emphasized that Xinjiang Huatie is engaged in cloud computing server leasing business and does not engage in "mining" business itself, that is, it purchases mining machines only for rent.

The above announcement shows that in 2018, Xinjiang Huatie had server leasing business income with three of them: Yiyang Xiangyitong Cloud Storage Network Technology Co., Ltd., Xiangyin Xiangyitong Cloud Storage Network Technology Co., Ltd., and Shanghai Xinding Metal Materials Co., Ltd. had rental fees of RMB 35.84 million, RMB 17.968 million, and RMB 7.67 million respectively in 2018. Among them, the leasing business of Shanghai Xinding Metal Materials Co., Ltd. is the Avalon A841 model produced by Canaan Creative.

In addition to Shanghai Xinding, Cailianshe reporters checked the industrial and commercial data and found that Yiyang Xiangyitong Cloud Storage Network Technology Co., Ltd. was established in November 2017 and has now been deregistered. Yinxiang Yitong Cloud Storage Network Technology Co., Ltd. was established on May 31, 2018. According to the announcement, Xinjiang Huatie's service lease started on June 1, 2018. This means that Xiangyin Xiangyitong Cloud Storage Network Technology Co., Ltd. reached a business cooperation with Xinjiang Huatie one day after its establishment.

Regarding Huatie Emergency's claim that it only engages in the "mining machine leasing" business, Hu Dong, chairman of Yibang, said in an interview that the so-called "mining machine leasing" is simply not possible. The leasing business cannot cover the purchase cost and operating cost (custodian fee) of the mining machine. The business is destined to be loss-making and the business model lacks rationality. "The operating costs are mainly custody fees and electricity costs. As we all know, the electricity costs of mining machines are very high."

On January 31, 2019, Huatie Emergency disclosed a special review opinion issued by Dongxing Securities, "confirming that among the relevant expenses of Xinjiang Huatie's cloud computing business, a custody fee of 51.08 million yuan was paid to Beijing Borui Space-Time Communication Culture Co., Ltd. (hereinafter referred to as "Beijing Borui"), and a custody fee of 1.26 million yuan and 2.2966 million yuan were paid to Lixian Youdu and Shihezi Tianding Cloud respectively, with a total custody fee of 54.6379 million yuan."

The transfer voucher of custody fees paid by Xinjiang Huatie and its affiliates to the custodian shown to reporters by Hu Dong showed that from June to November 2018, Xinjiang Huatie directly paid 51.08 million yuan in custody fees to Beijing Borui, Xinjiang Huatie-related individuals Hu Xiaohua/Dong Junna/Chen Zhixiao/Hu Jinping paid 1 million yuan in custody fees to Beijing Borui, Xinjiang Huatie supplier Hefei Keming paid 350,000 yuan in custody fees to Beijing Borui on behalf of Xinjiang Huatie, and Xinjiang Huatie supplier Hefei Keming paid 2.566 million yuan in custody fees to Wuhai Yizhi on behalf of Xinjiang Huatie, totaling 54.9981 million yuan.

From July to November 2018, Xinjiang Huatie-related individuals Yang Tao/Dong Junna/Hu Jinping/Cai Fumei/Chen Zhixiao/Wei Tiantian/Wang Pei and others paid a total of 31.35 million yuan in custody fees to Hong Jiajun. It should be pointed out that according to the list of incentive targets for the 2019/2020/2021 stock incentive plan announced by Huatie Emergency, Dong Junna/Hu Jinping/Yang Tao/Chen Zhixiao and others are all core personnel on the list of incentive targets for Huatie Emergency Plan. The above two fees are combined and the total custody fee paid is more than 86.3548 million yuan.

Hu Dong, chairman of Ebang International, said, "Huatie Emergency deliberately under-recorded the custody fees paid by related individuals and companies. Why didn't Xinjiang Huatie include the custody fees paid on behalf of Xinjiang Huatie in the costs of the listed company? Where did the money for the custody fees paid by the listed company's related persons come from?"

Regarding the source of the above receipts, Hu Dong explained, "We got this from Beijing Borui, and some of it was sent by Chen Baoqing (Xinjiang Huatie Mining Machinery Business Contact) to the work groups of both parties."

As of press time, Cailianshe reporters were unable to contact relevant personnel from Beijing Borui for comment.

It is worth mentioning that after Xinjiang Huatie entrusted the mining machine to Beijing Borui, it was once in court for unpaid electricity bills for mining. In April 2019, Beijing Borui sued Xinjiang Huatie and Huatie Emergency because Xinjiang Huatie owed electricity bills for mining. On April 15, 2019, 80% of Xinjiang Huatie’s equity was frozen by the Hainan District Court of Wuhai City, Inner Mongolia Autonomous Region.

Focus: The whereabouts of the 4,481 mined bitcoins are unknown

In fact, regardless of whether Huatie purchased the mining machines for "mining machine leasing" or "mining coins by itself", this batch of mining machines has already mined Bitcoin, and the number of Bitcoins obtained from mining has reached at least 4418.895748.

On August 8, Hu Dong, chairman of Ebang International, told reporters, "The company has accumulated many years of professional knowledge in Bitcoin mining machines. According to relevant technical means of investigation, 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 user with the number 1390650XXXX, who is Pan Qian, the wife of Hu Danfeng, chairman of Huatie Emergency."

On the same day, Wang Hongyong, vice president of Ebang International, showed reporters the five Bitcoin wallet addresses corresponding to Pan Qian’s mobile phone number, as well as the specific sub-accounts, payment time and payment address. They are:

3C7zKvGvzXkQG2NHMc6MGeaAt5n1hSHxic

3KuXRYoawm46yYVXz3pMiQEU1egfnbu6xY

3DTWogY7m8jbwR57D3gPCWwGYNJ19EgdKX

38wgMCkRM65SVE3U9mUdYU7KbGSurAJX3G

31hDB2ktjjzeUmG53DK9c2NCyF8dUyWgLD

"These five Bitcoin addresses are different Bitcoin addresses of the same Bitcoin wallet, which means that these five Bitcoin addresses are controlled by the same person." When Wang Hongyong demonstrated how to query the Bitcoin address on site, the web page clearly showed that a verification code must be entered with an associated mobile phone number before the process can continue.

A reporter from Cailianshe checked Huatie's emergency announcement and found that there was no information about Bitcoin in the listed company's announcements, and when it transferred its shares in Xinjiang Huatie, no information about Bitcoin was reflected in the evaluation report.