A-shares "Mattress King" Xilinmen Under Investigation, 100 Million Yuan Cash Mysteriously Disappears

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Reporter | Cui Wenjing

Editor | Bao Fangming

On April 1, LCA Sleep Health Technology Co., Ltd. (hereinafter referred to as “LCA Sleep”) released four major announcements in quick succession. This finally exposed the internal crisis that had been hidden deep within this mattress industry leader to the spotlight of the capital markets.

The company was placed under a filing for investigation by the CSRC. The actual controller was also placed under a filing for investigation by the CSRC. The shares held by the controlling shareholder and its concerted action persons were judicially frozen. As a listed company, LCA Sleep, acting as the plaintiff, brought the controlling shareholder and its concerted action persons to court, seeking damages of nearly RMB 480 million.

Four announcements—each one enough to make investors feel a jolt of fear.

The fuse for all of this can be traced back to March 27. That day, LCA Sleep disclosed that RMB 100 million in funds belonging to a subsidiary had been illegally transferred by insiders. On the same day the announcement was issued, the Shanghai Stock Exchange quickly sent out a regulatory work letter, requiring the company to conduct a comprehensive self-examination.

Once the regulator’s “radar” was activated, it pinpointed the problem with precision. Under strong regulatory pressure, LCA Sleep carried out an internal self-check. Just a few days later, a more shocking truth emerged: the controlling shareholder, through complicated methods such as loan rollovers and factoring financing, was suspected of treating the listed company as its own “cash machine.” The balance of non-operating fund occupation was as high as RMB 190 million—far beyond the regulatory red line.

From the regulatory work letter issued by the Shanghai Stock Exchange on March 27 to the CSRC’s formal filing for investigation on April 1, there were only 5 days in between. From identifying the issues and urging self-examination, to uncovering the truth and filing for accountability, the regulator moved with thunderous force, rapidly tearing open this listed company’s internal control black hole.

This company, which once sold itself on “protecting the spine,” now finds itself pushed to the brink of being subject to risk warning due to the “collapse” of internal governance.

（LCA Sleep’s factory premises. Company website / photo）

In the capital markets, as of the close on April 1, LCA Sleep’s share price was RMB 15.2 per share, and its total market value stood at RMB 5.6B.

From the work letter to the filing—regulatory “5-day lightning campaign”

The April 1 announcement was, for LCA Sleep, no different from a public “trial.”

The information disclosed that day showed that the company and its actual controller, Chen Ayu, simultaneously received the CSRC’s “Notice of Filing for Investigation,” with the matters pointed to both being “suspected violations of laws and regulations regarding information disclosure.” This means that the regulator had already obtained leads sufficient to initiate the filing procedure—this was absolutely not an ordinary inquiry letter, but the “door-opener” for a formal investigation process.

What is truly worth focusing on, however, is the astonishing regulatory efficiency behind it.

Take the timeline back to March 27. On that day, LCA Sleep announced that RMB 100 million of funds from its subsidiary, Xitu Technology Co., Ltd., had been illegally transferred. Almost at the same time, the Shanghai Stock Exchange’s regulatory work letter had already been delivered to the company, requiring it to conduct a comprehensive self-examination of the relevant matters. From the exposure of the issue to regulatory intervention, there was virtually no time gap. The Shanghai Stock Exchange’s rapid response was like a stone thrown into a calm lake, triggering a chain reaction of events that followed.

Under the strong pressure of the regulatory work letter, LCA Sleep was forced to carry out an internal self-examination. Within just a few days, the issue of the controlling shareholder’s fund occupation hidden behind complex transactions was peeled back layer by layer. From loan rollovers to factoring financing, a chain of benefit transfers spanning hundreds of millions of yuan gradually became clear.

Meanwhile, the CSRC’s actions were even more like a “lightning campaign.” The Shanghai Stock Exchange issued the work letter on March 27, and by April 1 the CSRC had formally filed for investigation—only 5 days in total.

Even more noteworthy is that the filing for investigation and LCA Sleep’s lawsuit against the controlling shareholder occurred on the same day. On April 1, LCA Sleep, as the plaintiff, brought the controlling shareholder, Zhejiang Huayi Intelligent Manufacturing Co., Ltd., the concerted action person Huahan Investment, and the actual controller, Chen Ayu, to court together. The total amount involved was as high as RMB 478 million—this figure is 1.48 times LCA Sleep’s 2024 net profit attributable to shareholders.

The details disclosed in the complaint are even more alarming. The controlling shareholder and its related parties allegedly infringed on the company’s interests through two models: first, the loan rollover model—through the controlling shareholder’s loan rollover business with the company, and as of now RMB 72 million owed to LCA Sleep has not been returned; second, the factoring financing model—through applying to banks for financing in the name of suppliers, with the funds ultimately flowing to the controlling shareholder and its designated accounts, totaling more than RMB 406 million obtained. However, these funds that had already been actually obtained by the controlling shareholder would need to be borne by LCA Sleep for payment obligations. Due to certain accounts payable reaching maturity, LCA Sleep has already actually assumed payment obligations to banks exceeding RMB 63 million, and its subsidiary, Shunxi Company, has also assumed payment obligations of more than RMB 8.11M.

Behind this series of figures lies an unsettling fact: the controlling shareholder may view the listed company as its own “cash machine,” and the “surgical knife” used to siphon out the listed company may be hidden within complex financing arrangements and related-party transactions. These operations likely were not subjected to compliant deliberation procedures and may not have fulfilled information disclosure obligations—this in turn corroborates the CSRC’s reason for filing for investigation, namely “suspected violations of laws and regulations regarding information disclosure.” It is precisely the regulator’s swift intervention that brought these hidden operations to the surface within just a few days.

At the same time, the shares held by the controlling shareholder and its concerted action persons were also judicially frozen. All 8.107 million shares held by the actual controller, Chen Ayu, were fully frozen, accounting for 100% of his shares held; 3.16M shares of Huayi Intelligent Manufacturing were frozen, and 8.4 million shares of Huahan Investment were frozen. Although these frozen shares represent only about 14.69% of the combined shareholding ratio of the controlling shareholder and its concerted action persons, the “total loss” of the actual controller’s holdings sends a clear signal: this crisis is not just a bookkeeping issue, but a real and concrete legal dispute.

The bizarre disappearance of RMB 100 million

On March 27, an announcement became a key “first domino” that toppled the crisis.

That day, LCA Sleep disclosed a truly hard-to-believe piece of information: its controlling subsidiary, Xitu Technology Co., Ltd. (hereinafter referred to as “Xitu Technology”), had funds in its bank accounts illegally transferred by insiders taking advantage of their positions, with a cumulative amount of up to RMB 100 million.

Note: this was not misappropriation, not occupation, but “illegal transfer”—in plain terms, someone just “transferred away” the company’s money directly. LCA Sleep applied to the public security authorities for filing and investigation on March 26, which means this is no longer an internal dispute of the company, but a “case” that has already entered criminal investigation procedures.

It is also noteworthy that LCA Sleep placed possible relevant bank accounts under protective freezing, with a frozen amount of about RMB 900 million. RMB 100 million was transferred away, and RMB 900 million was frozen. The total funds involved and frozen exceeded RMB 1 billion. What does this number mean? It accounts for 26.54% of LCA Sleep’s most recent audited net assets, and 42.69% of monetary funds—put simply, more than 40% of the cash on LCA Sleep’s books has either disappeared or has been locked in a way that cannot be used.

This incident, which appears to involve isolated fund transfer by a subsidiary, might have been treated as an “isolated case.” But the regulator’s radar was far more sensitive than anyone could imagine. On the very same day the announcement was issued, the Shanghai Stock Exchange’s regulatory work letter had already been delivered to LCA Sleep, involving the listed company itself, directors, senior executives, the controlling shareholder, and the actual controller.

It was precisely this regulatory work letter that became the “fuse” that triggered a series of subsequent events. Under strong regulatory pressure, LCA Sleep was forced to carry out internal self-examination. As the self-examination deepened, the controlling shareholder’s long-term occupation of funds from the listed company gradually came to light. From March 27 to April 1—within just a few days—a web of interest encroachment involving nearly RMB 500 million was uncovered layer by layer.

The follow-up speed of the CSRC was even more striking, allowing people to see the regulator’s determination of “zero tolerance.” While LCA Sleep was still conducting internal self-examination, the CSRC had already initiated the investigation procedures in parallel. The Shanghai Stock Exchange issued the work letter on March 27, and the CSRC formally filed for investigation on April 1—this rapid reaction and tight coordination between the regulators created a seamless regulatory chain. From the exchange’s daily supervision to the CSRC’s filing for investigation, two levels of regulatory authorities completed seamless connection in just 5 days, which is extremely rare in prior A-share regulatory practice.

High-pressure regulation forces “family disgrace to be exposed”

If the transfer of subsidiary funds was an “accident,” then the controlling shareholder’s fund occupation is an “accumulated longstanding problem.” And the mechanism of being forced to bring these “longstanding problems” into the open is exactly what the high-pressure regulator is applying.

Under the guidance of the regulatory work letter, through self-examination, LCA Sleep finally made these “family disgrace” public. As of the disclosure date of the April 1 announcement, the balance of non-operating funds occupied by the controlling shareholder and its related parties totaled RMB 190 million. This amount had already exceeded 5% of the absolute value of LCA Sleep’s most recent audited net assets, triggering the hard requirement for “other risk warning” (i.e., ST).

The rules are spelled out clearly: if the controlling shareholder and its related parties fail to complete repayment or rectification within 1 month, the company’s stock will be subject to other risk warning. The 1-month countdown has already started, leaving LCA Sleep with little time. And the exposure of this result is the product of the company being forced to do a self-“physical check” under strong regulatory intervention. Without the regulatory work letter pushing it, these fund occupation issues might have continued to be hidden behind complex transaction structures. No one would know when they would come to light.

But this is not all. The announcement also includes an “unfinished remark”: in addition to non-operating fund occupation, there are also cases where the controlling shareholder and its related parties provided guarantees to the company in violation of procedures without due deliberation. The specific amount has not been disclosed; it only states, “subject to the amount further investigated by the company and the final determination by regulatory authorities.” This means that the RMB 190 million funds occupation currently disclosed may not be the entire figure, and the actual number could still change.

Audit risks also exist. The announcement explicitly warns that if the audit institution issues non-unqualified opinions on the effectiveness of the company’s internal control over financial reporting as of December 31, 2025 and on the company’s 2025 annual audit report due to this event, then the company’s stock may be subject to other risk warning or delisting risk warning after the disclosure of the 2025 annual report. In other words, besides the ST risk within 1 month, there is also another heavier “Sword of Damocles” hanging over LCA Sleep’s head.

Looking back at LCA Sleep’s performance in recent years, in 2024 the company’s revenue was RMB 1.25B, up slightly year over year by 0.59%, but the net profit attributable to shareholders was only RMB 322 million, down sharply 24.84% year over year. Operating cash flow also fell from RMB 1.253 billion to RMB 787 million, a decline of 37.23%. Although the core business is still being maintained, cracks in internal governance have already spread to financial performance. Now, with multiple negative factors piling up—such as the controlling shareholder’s siphoning, CSRC filing for investigation, and judicial freezes—the challenges are considerable.

From a more macro perspective, LCA Sleep’s ordeal is not an isolated case, but the regulator’s response speed has set a new record. The new “Nine Provisions” for 2024 and their supporting measures clearly require “promoting listed companies to enhance investment value,” strengthening oversight of cash dividends for listed companies, linking dividends to share reductions, and introducing ST arrangements when dividend targets are not met. At the same time, the regulator has continued to intensify its efforts to investigate and punish behaviors such as fund occupation, illegal guarantees, and violations of information disclosure laws and regulations. Since this year began, multiple listed companies have been subject to risk warnings or filed for investigation due to issues such as controlling shareholder fund occupation. But cases like LCA Sleep, where the period from issue exposure to filing for investigation takes only 5 days, are still extremely rare.

The regulator’s “tightening spell” is being tightened at an unprecedented speed. Any attempt to encroach on the interests of listed companies through complicated arrangements will face increasingly severe accountability. The regulatory work letter issued on March 27 and the filing for investigation on April 1 formed a “one-two combo.” Its speed and force are so great that it sends a clear signal to the market: for actions that harm the interests of listed companies, the regulator will never delay even a moment.

For LCA Sleep, this crisis—triggered by the regulatory work letter and pushed to a climax by the filing for investigation—has been both a painful process of “family disgrace being exposed” and a test of survival. It is not common in A-share history for a listed company to proactively sue its controlling shareholder. To some extent, it also shows that under high-pressure regulation, the company’s management had no choice but to sever ties with problematic shareholders and demonstrate its determination to protect the interests of the listed company. But the reality in front of it is stark: how easy is it to repay RMB 190 million of fund occupation within 1 month? And whether the risk of the audit report can be resolved is still an unknown.

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责任编辑：宋雅芳