BYD advertising scandal ends: "Double-faced Li Juan" sentenced to 14 years in prison, many advertising companies on the verge of bankruptcy

On the eve of May Day this year, an execution order brought the almost forgotten "BYD Advertising Gate" incident back into the public eye.

"This court believes that after exhausting all property investigation measures, the party to be executed in this case, Shanghai Yuhong Culture Communication Co., Ltd., currently has no property available for execution." The execution order recently announced by the People's Court of Fengxian District, Shanghai, also basically declared that Shanghai Yuhong Culture Communication Co., Ltd. (hereinafter referred to as "Shanghai Yuhong"), which was once at the center of the "BYD Advertising Gate" storm, is now on the verge of bankruptcy.

"(Yuhong) is no longer doing business now." On May 12, Wang Xiaoting, the former head of Shanghai Yuhong, whose identity was "borrowed" by Li Juan, replied to the Red Star Capital Bureau that she no longer works at Shanghai Yuhong and is not aware of the company's current specific situation.

Li Juan, the protagonist of the "BYD Advertising Gate" incident, was sentenced to 14 years in prison by the Shanghai Pudong New District People's Court on December 31, 2019 for contract fraud. At that time, after the first-instance judgment, Li Juan appealed, but then quickly withdrew the lawsuit. Li Juan's husband, Mr. Xia, said in a reply to the Red Star Capital Bureau that he was not aware of the withdrawal of the lawsuit.

It seems that this "advertising Rashomon" that once shocked the whole country has come to an end with Li Juan's sentencing. But behind the scenes, more than 30 advertising companies and suppliers involved in the incident are still entangled in legal proceedings, and many advertising companies are on the verge of bankruptcy.

A brief review of the “BYD advertising scandal”

According to an earlier report by Red Star Capital, on July 12, 2018, BYD (002594, SH) officially issued a "Statement on Li Juan and others using the name of BYD to conduct related business", which stated that in May 2017, Li Juan used the name of Shanghai Yuhong Culture Communication Co., Ltd. and took the trial and free use of its own resources (advertising and activities) as an entry point to contact BYD and carry out free advertising. She then forged BYD's company seal and used the company's name to conduct business.

BYD said in a statement that it had reported the case to the Shanghai police on suspicion of Li Juan forging its seal and contract fraud. The police seized several forged BYD seals from Li Juan, who was taken coercive measures by the police for suspected crimes; BYD was not aware of the contracts signed with related companies by Li Juan and others using forged seals, and it had nothing to do with the company. The incident was called the "BYD Advertising Gate" and once caused heated discussions among people.

"Subcontractor" Shanghai Yuhong involved in 30 legal proceedings

More than 30 million yuan in debt cannot be repaid

On April 29, 2021, the People's Court of Fengxian District, Shanghai, issued an execution ruling: "After exhausting all property investigation measures, the defendant in this case, Shanghai Yuhong Culture Communication Co., Ltd., has no property available for execution, so there is no condition for continued execution, and the execution procedure should be terminated."

Screenshot from Judgment Documents Network

This execution originated from a service contract dispute between Shanghai Yuhong and Horgos Tongling Lisheng Advertising Communication Co., Ltd., and there are five similar execution orders.

Public data shows that Shanghai Yuhong is involved in 30 legal proceedings, 10 consumption restriction orders, and 11 dishonest debtors, all of which were caused by the "BYD advertising scandal". There are also 8 final cases with a total execution amount of more than 30 million yuan, all of which have not been executed.

Shanghai Yuhong, which was once at the center of the "BYD advertising scandal", is now on the verge of bankruptcy.

In the BYD advertising scandal, Shanghai Yuhong was the only supplier that BYD Group had in its inventory, and "Shanghai Yuhong executive Wang Xiaoting" was Li Juan's "official identity" when negotiating with BYD. What role Shanghai Yuhong played in the BYD "advertising Rashomon" incident was once inconceivable.

On May 12, the Red Star Capital Bureau called Shanghai Yuhong. When asked whether the company was still operating normally, the other party said, "It is no longer doing business." Wang Xiaoting also told the Red Star Capital Bureau, "I no longer work for Yuhong and I don't know about Yuhong's affairs." Then she hung up the phone in a hurry.

Looking back at the "BYD Advertising Gate" incident, this is a Rashomon whose truth has not yet been revealed. BYD, Shanghai Yuhong and more than 30 advertising companies involved have all regarded themselves as victims after the incident.

Li Juan, who claimed to be the "General Manager of the Marketing Department of Shanghai BYD Electric Vehicle Co., Ltd." to the outside world, was the person who triggered the advertising scandal. To the outside world, Li Juan negotiated with many advertisers in the name of Shanghai BYD. In three years, more than 30 advertising companies helped BYD to carry out dealer activities and advertising in many regions. To BYD, Li Juan used the name of Shanghai Yuhong Culture and used low prices and free of charge as bait to reach cooperation with BYD, including the star project of sponsoring the Premier League football club Arsenal.

Li Juan's "double business" lasted for nearly three years, until 2018, when many advertisers were unable to receive payments, involving an amount of up to 1.1 billion yuan. Dozens of advertising companies found BYD headquarters, but later, BYD officials issued a "Statement on Li Juan and others using BYD's name to conduct related business" as a victim, saying that Li Juan used the identity of the general manager of the marketing department of Shanghai BYD Electric Vehicle Co., Ltd., forged multiple seals, and carried out advertising cooperation with multiple units and institutions in the name of BYD. BYD was not aware of this.

This statement quickly triggered the anger of the advertising company. Which side did Li Juan represent? Who was the victim? Who was the ultimate beneficiary? As public opinion fermented, there were many different opinions.

"Two-faced Li Juan" sentenced to 14 years in prison

Appealed once and then withdrew the case

In 2015, Li Juan transformed herself from an ordinary employee in an advertising company to the "General Manager of the East China Regional Marketing Department of Shanghai BYD Electric Vehicle Co., Ltd.". She rented an office in the Shanghai Times Financial Center, recruited employees, and then started her "double-sided business."

Li Juan explained to suppliers the reason for the existence of "Shanghai BYD": BYD's senior management was reshuffled, and a senior executive who was dissatisfied with the headquarters' marketing department wanted to set up another company outside and then gradually replace the headquarters' marketing department.

This "double-sided business" lasted for nearly three years. In June 2018, Li Juan was unable to pay the debts owed to more than 30 advertising suppliers and was unable to clean up the situation. She then surrendered to the police for reasons unrelated to the matter (a property worth 12 million yuan of unknown origin). She was criminally detained on June 27 and arrested on August 3 of the same year and detained in the Shanghai Pudong New Area Detention Center.

One year after the "BYD Advertising Gate" incident, this confusing Rashomon finally came to an end.

In the court verdict, we can get some mysterious conclusions: Li Juan set up the "Shanghai BYD Electric Vehicle Co., Ltd. Marketing Office" without the permission of BYD Company, claimed to be the person in charge, used privately engraved seals to sign BYD brand advertising promotion contracts with dozens of advertisers, and the unpaid amount was as high as 247 million.

In addition to gaining the trust of advertisers, Li Juan also used BYD's name, promised high interest returns, and lured companies including Shanghai Shuangyang and Shanghai Ruisizhe to pay 175 million yuan in the name of advance payment for advertising projects related to the BYD brand. The funds eventually flowed to the company designated by Li Juan, part of which was used to pay for the initial advertising contracts, and part of which was used for her operating expenses, personal use, and purchase of real estate.

On December 31, 2019, Li Juan was sentenced to 14 years in prison, deprivation of political rights for three years, and confiscation of RMB 5 million in property by the Pudong New Area People's Court of Shanghai for contract fraud. The seized real estate was returned to the victim unit at a discount.

It is worth noting that the judgment document stated that Li Juan "fabricated instructions from others." In other words, after the court trial, Li Juan's claim that she was instructed by her boss Chen Zhenyu was not true. Chen Zhenyu was Li Juan's former colleague when she worked at Shui On Land. In an interview with the media, he also denied that he had anything to do with the BYD advertising scandal.

As mentioned above, Li Juan reported to the police a property worth 12 million yuan of unknown origin. According to media reports, Li Juan's family said that the property was a bonus given to her by her boss. However, the judgment document mentioned that Li Juan used BYD's name to defraud Shanghai Qiancheng Culture of 17.8 million yuan, of which 12 million yuan was used for her personal purchase of a house, but it did not specify whether it was the same property.

The Red Star Capital Bureau discovered that after the Shanghai Pudong New Area People's Court made the first-instance judgment, Li Juan expressed dissatisfaction and filed an appeal, but during the trial at the Shanghai First Intermediate People's Court, Li Juan applied to withdraw the lawsuit.

Li Juan, the protagonist of the "BYD advertising scandal", appealed after the first-instance judgment and then withdrew the lawsuit

On May 12, 2021, the Red Star Capital Bureau called Li Juan's husband, Mr. Xia. Regarding Li Juan's withdrawal of the lawsuit, Mr. Xia said he was not aware of it. Regarding the "BYD advertising scandal" that year, Mr. Xia also repeatedly emphasized: "I don't know about this matter, you can ask others."

BYD faces multiple lawsuits

Once accused of management loopholes

Judging from Li Juan's verdict, BYD seems to be an innocent victim and escaped unscathed. But in fact, BYD is also facing multiple lawsuits.

In 2018, BYD was sued by Shanghai Qiancheng Culture Communication Co., Ltd. for a service contract dispute; in April 2020, the Songjiang District People's Court of Shanghai accepted the case in which Shanghai Weiruiguang sued BYD for a service contract dispute; Shanghai Suken Advertising also sued BYD for a service contract dispute around 2019, but withdrew the lawsuit at the beginning of this year.

In addition to legal disputes, BYD was once mired in the shadow of its advertising Rashomon scandal, with its stock price plummeting, its market value evaporating, the company's reputation also suffering, and the outside world questioning the company's internal management loopholes.

BYD's performance that year also fell short of expectations. Although its operating income in 2018 increased by 22.79% year-on-year, its net profit was 2.78 billion yuan, a year-on-year decrease of 31.63%. This was despite receiving a large amount of new energy subsidies.

After the BYD advertising scandal fermented, BYD issued three statements in a row saying that it was "completely unaware" of the advertisers. However, on July 16, 2018, BYD's attitude changed significantly, and it issued a statement saying that it was willing to communicate with the relevant companies and discuss reasonable solutions with the relevant companies in accordance with the police's verification and determination of facts and amounts.

But the outside world does not know how the discussions will go.

During the 2019 Shanghai Auto Show, there was a rights protection movement at the BYD booth. Seven young people wearing black and white T-shirts with the words "BYD pay back the money" printed on them stood on the BYD booth. Some people believed that this was related to the BYD advertising scandal, but after the auto show, there was no follow-up to the rights protection movement.

Rights protection at BYD booth at 2019 Shanghai Auto Show

Dozens of advertising companies implicated

Many companies are now facing lawsuits and bankruptcy

After the "BYD Advertising Gate" broke out, an advertising company Shanghai Jingzhi once published an article questioning BYD: "For 3 years, such a large amount of activities, such a massive brand promotion, did your company really not know anything about it?"

The article also exposed the secrets of dozens of advertising companies. Another advertising company, Shanghai Suken, said that as a supplier of static exhibitions in BYD shopping malls in East China and North China, it has executed more than 30 static exhibitions, placed outdoor advertisements in Tangshan High-speed Railway Station and Airport, and filmed BYD new energy vehicle print advertisements, BYD new energy vehicle TVC advertising videos, etc. The contract amount of various sizes is nearly RMB 30 million.

Now, apart from Shanghai Yuhong which is on the verge of bankruptcy, what is the current situation of the dozens of advertising companies affected?

The Red Star Capital Bureau found that Shanghai Suken Advertising had been listed as a dishonest company and a restricted high-consumption enterprise because it had not paid Guangdong Satellite TV Culture Communication Co., Ltd. 300,000 yuan in advertising resource fees and liquidated damages. Another advertising company, Shanghai Shuangyang Culture, had also been involved in loan disputes many times and was now listed as a restricted high-consumption enterprise by the court. Dishonesty, restricted height, and compulsory execution; Shanghai Jingzhi Advertising also faced the same situation.

In fact, the BYD advertising incident involved far more advertisers than this one. According to media reports, during Li Juan's operation, she encouraged some powerful advertisers to develop downlines and hand over some specific matters to more second-level advertisers, the number of which far exceeded 30.

The Red Star Capital Bureau found that Shanghai Yuhong had signed an advertising contract with Shanghai Jungu Culture for a satellite TV station's New Year's Eve concert, and Shanghai Jungu packaged some of the advertising projects to Sichuan Panda DreamWorks. After the "BYD Advertising Gate" incident, the latter two companies also went to court over an advertising contract dispute.

It can be seen that the advertising companies and suppliers involved are still entangled in legal proceedings to this day.

For a company of BYD's size, the impact of the advertising Rashomon is short-lived. Just last year, BYD's stock price soared 9 times, reaching a peak of HK$273.37 in January 2021. But for dozens of advertising companies such as Shanghai Suken, they are facing the end of closing down, bankruptcy, and being dragged down.

Mr. Wu, the person in charge of Shanghai Suken, once told the media: "The lawsuit will take at least one or two years, and our advertising company cannot afford it. The company will be dragged down. At that time, we said to sit down and talk with BYD headquarters. If you have difficulties, you don't have to pay me all at once. Even if you pay me in installments over one or two years, as long as you let us live, we will be very easy to talk to."

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.