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July 6, 2019, is destined to be an unacceptable day for countless small and medium-sized investors. The China Securities Regulatory Commission issued the "China Securities Regulatory Commission Prior Notice of Administrative Punishment and Market Ban" (hereinafter referred to as the "Prior Notice"), which removed the last FIG leaf of Kangdesin. Once 100 billion white horse stocks are facing the dilemma of delisting. Throughout the entire "Notice in advance", inflated profits, non-operational funds occupied by controlling shareholders, related transactions, and non-disclosure of major matters, all kinds of shocking words that make the majority of shareholders pop out one by one, beyond everyone's imagination. In fact, as early as October 28, 2018, Kangdexin chaos began to emerge, and its actual controller Zhong Yu was investigated by the CSRC. On January 22, 2019, the CSRC began to launch a comprehensive investigation of Kangdexin Composite Materials Group. The various measures of the CSRC undoubtedly announced the confusing future of Kangdexin, and the small and medium-sized shareholders who saw the confusion or were nervous. Or at a loss, no one knows what the future situation will be, until the new veil of Kangde is lifted.........

It is not a new thing that listed companies misrepresent and conceal important matters, leading to the disaster of countless shareholders, and how to prevent it is indeed an important issue. However, in the face of the established results, how to recover their losses is perhaps the most concerned thing for countless damaged shareholders. According to the relevant provisions of the Securities Law and the Provisions of the Supreme People's Court on the Trial of Civil Compensation Cases Arising from False Statements in the Securities Market (hereinafter referred to as the "Provisions"), if a listed company does make false statements and the false statements have caused losses to investors, It can also be said that the investor's claim to the listed company and its relevant actual controllers, accounting firms, securities recommenders and other entities involved in false statements can be said to be based on law.

Therefore, in the following content, the author will combine the above provisions to make a simple description of the core legal points in the relevant civil compensation cases caused by false statements of listed companies, to help the majority of shareholders more clearly realize that in the face of such cases, we should pay attention to what.

I. Subject of litigation: The suitability of the original defendant

Common subjects that can be used as original defendants in misrepresentation cases of listed companies include:

1. Eligible Defendant:

A defendant in a misrepresentation securities civil compensation case should be a misrepresentation perpetrator, including:

(1) the actual controller of the listed company, such as the initiator and controlling shareholder, who commits the act of misrepresentation;

(2) Issuers or listed companies that commit acts of false representation;

(3) a securities underwriter who cannot prove that he was not at fault in the misrepresentation;

(4) recommenders of securities listing who cannot prove that they are not at fault in the process of misrepresentation;

(5) accounting firms, law firms, asset appraisal agencies and other professional intermediary services that cannot prove that they are responsible for some of the false statements without fault; (such as audit obligations, legal compliance review obligations, asset evaluation obligations, etc.)

(6) Senior managers such as directors, supervisors and managers in the units mentioned in item (2), (3) and (4) who are responsible and cannot prove that they are not at fault, as well as those directly responsible in item (5);

(7) Other organizations or natural persons that make false statements.

All of the above subjects have the possibility of being listed as co-defendants alone, among which (2) the subjects are defendants in the vast majority of false statements cases.

2. Eligible plaintiff:

The plaintiff in a case of civil compensation for misrepresentation of securities must be any natural person, legal person or other organization that has subscribed and traded in the securities market and suffered losses due to misrepresentation. (Consider whether to include companies engaged in the fund industry)

Ii. Premise for claim (Constitutive elements)

The requirements for the establishment of investors' claims in cases of misrepresentation of listed companies include:

1. The listed company (including other eligible defendants) has misrepresentation:

False statement refers to the behavior of information disclosure obligor who, in violation of securities laws and regulations, makes false records or misleading statements about major events that go against the truth in the process of securities issuance or trading, or makes major omissions or improperly discloses information when disclosing information.

(1) False record: refers to the behavior of the information disclosure obligor to record non-existent facts in the information disclosure documents when disclosing information;

(2) Misleading statements: statements made in information disclosure documents or through the media that cause investors to misjudge their investment behavior and have a significant impact;

(3) Major omission: refers to the information disclosure obligation in the information disclosure documents, does not record the matters that should be recorded in whole or in part;

(4) Improper disclosure: means that the information disclosure obligor fails to publicly disclose the information that should be disclosed within the appropriate time limit or in a legal manner.

2. There is a causal link between misrepresentation and investor's losses:

The causal relationship between misrepresentation and investors' losses can be mainly reflected in the following aspects:

(1) The investor is investing in securities directly linked to the misrepresentation;

(2) The investor purchased the securities on or after the date of the misrepresentation and before the date of disclosure or correction;

(3) The misrepresentation of the misrepresentation is sufficient to cause the stock price to rise, or may affect investors' judgment on the value of the company's stock; (This article is based on the case summary, details can be seen in case No. 1 "Shanghai Great Wisdom Co., LTD., Fong's CPA Firm and Sunjin Securities false statement liability Dispute")

(4) On or after the disclosure date or correction date of the misrepresentation, the investor incurred a loss from the sale of the security, or incurred a loss from the continued holding of the security;

(5) The investor's loss is not or is not entirely due to other factors such as the systemic risk of the securities market. This article is based on the case summary, the details can be seen in case No. 1 "Shanghai Great Wisdom Co., LTD., Fong's CPA Firm and Sunjin Securities false statement liability Dispute")

Iii. Scope of claimable subjects:

In cases of misrepresentation of listed companies, the scope of investors who can claim compensation includes:

1. Starting time for calculating the scope of claimable subjects:

(1) The date of execution of the false statement: the date on which the false statement is made or occurred by the person making the false statement.

For example:

① The announcement date of the company's annual report, quarterly report, profit forecast, and performance bulletin that makes false statements

② The date of the occurrence of major undisclosed matters (such as the arrest of the actual controller, the failure to perform major maturing debts, and the transfer of major property)

2, the scope of claimable subject calculation termination time:

(1) The misrepresentation disclosure date

The date on which the false statement is publicly disclosed for the first time in the press, radio, television or other media distributed or broadcast nationwide.

① The disclosure is related to the content of the false statement

② The subject of disclosure is authoritative (such as the announcement disclosed by the company on the website of Giant tide network and Securities Daily)

③ First disclosure

The disclosed conduct caused, or was sufficient to cause, a fluctuation in the price of the securities

Common types:

A. The date on which the listed company and its management personnel are placed under investigation

B. The date on which the listed company receives the notice of punishment in advance

C. Administrative penalty announcement

D. Media disclosure day

E. Self-disclosure Day of listed companies (Risk disclosure)

F. The date on which the listed company receives the announcement of the decision on administrative regulatory measures

(2) Correction Day for false statements

Refers to the date on which the perpetrator of a false statement makes a self-announcement on the media designated by the China Securities Regulatory Commission to disclose securities market information to correct the false statement and go through the trading suspension procedures as required.

 

In summary, the subject range of claims that can be made is that from the date of the misrepresentation to the date of disclosure or correction of the misrepresentation, investors who purchased the securities of the enterprise that made the misrepresentation and sold or continued to hold the securities after the date of disclosure or correction of the misrepresentation.

Iv. Calculation method of claims

In cases of misrepresentation of listed companies, the steps and methods for calculating the amount that investors can claim are as follows:

1. Determine the base date:

Means the deadline set after the misrepresentation is disclosed or corrected for the purpose of limiting the Investor's liability to losses caused by the misrepresentation and determining a reasonable period of time for calculating losses. The base date shall be determined according to the following circumstances:

(1) From the date of disclosure or correction to the date when the cumulative trading volume of the securities affected by the misrepresentation reaches 100% of its tradable portion. However, the volume of securities transferred through block trading agreements is not counted. That is, the turnover rate is 100%; (Calculation method of turnover rate: Turnover/total number of shares in circulation ×100%)

(2) In accordance with the provisions of the preceding paragraph, if it cannot be determined before the hearing, the 30 trading days after the date of disclosure or correction shall be the base date;

(3) If the stock exchange has been withdrawn from the stock exchange market, the trading day before the delisting date shall be the base date;

(4) Where securities trading has been halted, the trading day before the suspension may be the base day; The resumption of transactions applies to subsection (1).

In judicial practice, the base date is usually determined by (1)

2. Specific loss calculation method:

(1) Investment balance loss:

① Average purchase price =

Amount spent on all shares purchased between the implementation date and the disclosure date (or correction date) ÷ total number of shares purchased (moving weighted average method)

Amount spent on net shares purchased between the implementation date and the disclosure Date (or correction date) ÷ Number of net shares purchased (FIFO weighted average method)

② Average selling price =

Between the disclosure date (or correction date) and the base date, the amount of shares sold ÷ the number of shares sold

③ Average closing price =

The sum of the closing price of each trading day from the disclosure date (or correction date) to the base date ÷ trading day

④ Specific calculation:

Loss on investment difference =

[(Average buying price - average selling price) × Number of shares sold before the base date + (Average buying price - average closing price) × (Number of shares sold after the base date + number of shares remaining)] × (1- Reduced risk ratio)

(2) Commission and stamp duty for the loss of investment difference:

① Commission =

Investment margin x commission rate

② Stamp duty =

Investment margin x tax rate

(3) Interest =

The period from the date of buying securities to the date of selling securities × (loss on investment difference + commission on investment difference + stamp duty on investment difference) × bank demand deposit interest rate for the same period

(4) Circumstances in which the investment balance may be reduced:

The investor's loss is partly caused by other factors such as the systemic risk of the securities market (this situation needs to be calculated by specialized agencies, and some courts have exercised discretion to reduce a certain percentage of the investment balance).

5. Courts of jurisdiction

In cases of misrepresentation by listed companies, courts with jurisdiction include:

1. Where a lawsuit is brought against the issuer or the listed company or any other competent defendant, the intermediate people's court with jurisdiction in the place where the issuer or the listed company is located shall have jurisdiction.

(2) A lawsuit against a misrepresentation perpetrator other than the issuer or a listed company shall be under the jurisdiction of the intermediate people's court where the defendant is located.

(3) An action brought only by a natural person as defendant shall be under the jurisdiction of the intermediate people's court having jurisdiction in the place where the defendant is located.

6. Circumstances of suspension or termination of litigation

The circumstances of suspension and termination of litigation in cases of misrepresentation of listed companies include:

1. After the people's court accepts a case of civil compensation for false statements in securities, if the party subject to administrative punishment refuses to accept the administrative punishment and applies for administrative reconsideration or brings an administrative lawsuit, it may rule to suspend the hearing.

2. If the people's court accepts a case of civil compensation for misrepresentation of securities and the relevant administrative penalty is revoked, it shall rule to terminate the lawsuit.

Vii. Common evidence required by the plaintiff

In the litigation process of misrepresentation cases of listed companies, the common evidence required by the plaintiff includes:

1. Identification documents of natural persons, legal persons or other organizations

(1) ID Card (original)

(2) Securities account confirmation issued by the securities business department

(3) Stock account card

(2) Supporting documents that can be used to prove the defendant's misrepresentation

(1) Written decision on administrative punishment

(2) Annual reports, quarterly reports, performance reports, profit forecasts, etc., involving false statements

(3) Judgment documents, company corrections and disclosure announcements involving major matters not disclosed

3. Supporting documents that can be used to prove the date of implementation, disclosure and correction of the act of misrepresentation

(1) Administrative Penalty Decision (Implementation date, disclosure date, correction date)

(2) Announcement of the listed company and its management personnel being investigated (Disclosure date, correction date)

(3) Notice of punishment received by the listed company in advance (disclosure date, correction date)

(4) Authoritative media's first reports on false statements of listed companies (disclosure date, correction date)

(5) Announcements of administrative supervision measures received by listed companies (disclosure date, correction date)

(6) Self-disclosure of listed companies (risk disclosure) (disclosure date, correction date)

(7) False statements of annual reports, quarterly reports, performance reports, profit forecasts, etc. (implementation date)

(8) Judgment documents involving disclosure of major matters, company corrections, disclosure announcements, etc. (implementation date, disclosure date, correction date)

4. Documents that can be used to prove the investor's loss

(1) Securities business Department statement (delivery slip)

(2) Stock account history trading records

(3) Statistical table of loss and written explanation of loss calculation

(4) The company's stock trading price and turnover statistics table (can be used to prove the base date and base price)

5. Relevant evidence requirements:

(1) Historical transaction records (or statements) in stock accounts

① Record record time: account opening date until now

② Issued by the securities company business department, each page stamped

③ The content must include:

A. Start and end time of reconciliation

B. Name

C. Account number

D. The closing time of each transaction

E. Number of shares, price and amount

F. Post-trade holding margin

④A4 paper printed on one side

If there are transfers in and out of the stock in both accounts, the transaction records of both accounts need to be provided; And try to choose a single stock trading record

(2) Securities account confirmation form

① Issued by the securities sales Department and stamped with the official seal

② Contents include:

A. Name

B. Id number

C. Account number

D. Account opening date

Viii. Conclusion

To sum up, this paper makes a general description of the core legal issues involved in civil compensation cases caused by false statements of listed companies. For more professional legal disputes existing in the cases, such as the determination of information disclosure date and the assessment method of systemic risk, this public account will be further discussed in subsequent articles.

 

 

 

 

Zhu Qin

Chief partner and lawyer of Shanghai Guohillhouse Law Firm

He has many years of legal service experience in the fields of corporate compliance, private equity investment and venture capital, finance and asset securitization, capital markets and mergers and acquisitions, engineering and real estate, dispute resolution, bankruptcy reorganization and liquidation.

 

leafiness

Assistant lawyer, Shanghai Guohillan Law Firm

His practice areas include capital markets, maritime commerce, and dispute resolution.