Author Zhang Zixue
Information disclosure illegal cases of issuers, listed companies and other entities have always occupied the largest proportion of securities law enforcement cases in my country and are the top priority. In recent years, my country has investigated and dealt with illegal information disclosure cases, the number, scale and breadth and depth of accountability, which are unique in the international community. Such cases, especially those involving major financial fraud, are often difficult and complex in the investigation process and have great resistance. However, when it comes to the identification and punishment process, the biggest dispute is generally not a factual issue but how to implement the responsibilities of many parties involved in the case inside and outside the company. The main basis for investigating and punishing illegal information disclosure is Article 193 of the " Securities Law, Article 161 of the Criminal Law, as well as the "Minutes of the Symposium on Several Issues Concerning the Trial of Evidence in Securities Administrative Penalty Cases", and the "Rules for the Determination of Administrative Responsibility for Information Disclosure Illegal Acts".
1. Overall problem
1. The statutory responsibility is too light. Although the law enforcement agency should impose as much as possible on the fine of 600,000 yuan for the company and 300,000 yuan for individuals, it often leads to an uproar in public opinion after the penalty decision was announced; the Securities Law (2015 revised draft) has made a certain degree of correction to this, but it still seems that it is not satisfied. The main reason is problem 2. Article 193 of the Securities Law is a "big basket", which not only covers very serious financial fraud and financial fraud, but also covers general false records, misleading statements and major omissions, and also covers disclosures of "failure to follow regulations", that is, failure to follow the time limit, format, content, and methods stipulated by relevant rules; the current legislation applies the single penalty rule to these behaviors that have huge differences in subjective malice, objective performance and harmful consequences, and naturally lose the point of view and advance and retreat. It is recommended to set a differentiated and highly targeted punishment level when revising the law. The third problem is that is that issuance fraud is often externalized to information disclosure violations. The two have a large degree of competition and cooperation, and there may be situations where information disclosure violations are intentionally or unintentionally replaced issuance fraud.
2. Responsibilities of issuers and listed companies
According to relevant legislation and law enforcement practices, the principle of attribution of issuers and listed companies in information disclosure violations is strict liability (absolute responsibility, no fault liability). However, in recent years, mature capital market legal jurisdictions such as the United States have increasingly paid attention to the issue of "secondary injury" of shareholders caused by the punishment of companies in securities fraud cases, which has caused controversy over whether companies should be punished. After the issuance of the "Notice on Matters Related to Case Inspection and Information Disclosure of Listed Companies" (CSRC [2007] No. 111), the China Securities Regulatory Commission has exempted a few listed companies that are in serious business difficulties and undergo "name change, name change, name change" reorganization or bankruptcy reorganization. The case in recent years is the Shandong Hailong case, and it was sued by a small investor for "administrative inaction". Although the court did not support his request on the grounds of the plaintiff's qualifications, the "other people who have interests in administrative acts" added in Article 25 of the new Administrative Litigation Law has the right to sue, which may affect future cases. Another problem is that Article 193 of the Securities Law stipulates a "double penalty system", while Article 161 of the Criminal Law corresponding to it has become a "single penalty system". Only the responsible persons are punished but not the company, and the company has a lack of criminal responsibility. At present, it is not clear whether the pre-procedure for civil compensation for false statements is cancelled. Both of the above situations may pose an obstacle to investors' claims.
3. Responsibility of directors, supervisors, and executives
It has become a consensus that directors, supervisors, and executives apply presumption of fault liability in information disclosure violations. This is also a compromise and reasonable explanation for Article 68 of the Securities Law "guarantees" that the information disclosed by listed companies is true, accurate, and complete. In practice, the parties have various reasons for disclaimer defense, including "not participating in the matters involved", "not aware of the matters involved", "there are major flaws in corporate governance and they do not have real power", "relying on the opinions of intermediary institutions mainly audit institutions", "relying on the opinions of management or other members of the board of directors", "implementing the organizational principle of individual obeying the organization and subordinates obeying the superiors", "being an external director, independent director or employee director", "having entrusted other directors to perform their duties on their behalf", "not in charge of or not responsible for information disclosure matters", "the regulatory authorities have not discovered it", etc.In response to these defenses, the China Securities Regulatory Commission's penalty decision letter responded to varying degrees. For example, in the Hongji Company case, it was pointed out that directors should "implement necessary and effective supervision" for information disclosure of affairs of listed companies in , and "the responsible persons who have not 'participated' and 'knowed' related matters but have not fulfilled their supervision obligations and have not diligently fulfilled their responsibilities"; this opinion was recognized by two-level courts in administrative litigation, and the relevant cases were also selected as "Top Ten Typical Economic Administrative Cases in 2015" by the Supreme People's Court. For example, in cases such as Nanjing Zhongbei, it was pointed out that "the accounting responsibility of a listed company and the audit responsibility of an external audit agency are two different responsibilities. When an illegal information disclosure situation occurs, the directors of the listed company cannot be exempted from the responsibilities of the audit agency on the grounds that the audit agency did not discover or point it out."
In specific cases, the accountability and punishment of law enforcement departments actually distinguish between different situations. First, distinguish between temporary reporting matters and regular reporting matters. Disclosure of temporary reports mainly depends on the duties, performance of duties, participation and knowledge of relevant personnel; disclosure of regular reports is not only based on whether the supervision obligations have been fulfilled. Second, distinguish between directors, supervisors and senior executives. Directors have the heaviest responsibilities. At the same time, they distinguish between executive directors and non-executive directors, internal directors and external directors in terms of punishment. If senior executives are in charge of business involved in the case (such as the Huarui Wind Power case) or participate in or be aware of the matters involved, they should bear responsibilities; supervisors should bear responsibilities if they participate or be aware of the matters involved. In addition, the professional backgrounds of different people are also considered in the trial.
4. The responsibility of controlling shareholders and actual controllers
The biggest obstacle in law enforcement is that the controlling shareholders and actual controllers can only be held accountable according to Article 193 of the Securities Law. It seems that only Changyuan Investment has an accountability case. Literally, "instruction" should be an active command and instigation. Article 18 of the "Rules for the Illegal Administrative Responsibility for Information Disclosure Illegal Acts" provides an expansion explanation, which stipulates that "those who conceal the information that should be disclosed and do not inform the information that should be disclosed" should also be deemed as "instruction". Due to the limitations of the rank of regulations and other reasons, this explanation has not been effectively implemented. However, the Securities Act (2015 revised draft) has made up for this flaw.
5. Responsibilities of middle-level personnel and core employees
There is a practical view based on the "loyalty and diligence obligation" in the Company Law and the "guarantee" responsibility for information disclosure in the Securities Law. It is believed that the responsible persons in the information disclosure violation should be strictly restricted to directors, supervisors, and senior executives. In fact, in serious information disclosure violations such as major financial fraud, there are clear legislative basis for holding middle-level personnel and core employees directly involved in the matters involved (the "other directly responsible persons" stipulated in the Securities Law), judicial interpretation basis (part 4, paragraph 3 of the Supreme People's Court's "Minutes of the Symposium on Several Issues Concerning the Trial of Evidence in Securities Administrative Penalty Cases), sufficient legal basis, precedent basis for my country's criminal judicial judgments (Green Dadi Case), and experience in mature capital market legal regions can be used to learn from. In recent years, the China Securities Regulatory Commission has achieved breakthroughs through cases such as Xinzhongji, Beidahuang, and Wanjiang Logistics, but it is still not sufficient.
6. Responsibility to help instigators
Many major financial frauds are inseparable from the cooperation of upstream and downstream customers, commercial bank branches, private equity fund institutions and even local government departments. However, these accusers who aided evildoers are basically at large. The only case of punishment so far is the clients in the Xinzhong Foundation case who cooperated with the company to revolve transactions to create profits. How to refer to the provisions of my country's public security, transportation, industry and commerce and other administrative departments to pursue "co-administrative violations", learn from the practices of legal regions such as the United States and bring these people to justice is an unavoidable challenge.
7. Other information disclosure obligors
generally refers to a person who violates Article 86 of the Securities Law for large-scale share disclosure obligations, or a acquirer who violates the disclosure requirements during the acquisition of a listed company.What is worth noting is that in recent years, two types of cases have expanded the scope of "other information disclosure obligors". One is that the China Securities Regulatory Commission punished the asset transaction counterparty and its responsible persons of listed companies for the first time in the case of Kanghua Agriculture and Jiuhao Group for backdoor listing; the other is that in the case of Shanghai Baoyin, it was punished for the first time that private equity institutions that arbitrarily issued their own proposals to the shareholders' meeting and participated in the corporate governance as an active shareholder.
8. Responsibilities of securities service institutions
At present, the market is most concerned about the issue of investigation of the "linkage" between punishment and administrative licensing. The China Securities Regulatory Commission is unifying the linkage mechanisms of various service institutions through mechanisms such as new and old separation, business classification, and restoration and review, and reducing the negative impact of the linkage mechanism on the reasonable expectations and legitimate rights and interests of non-involved administrative licensing applicants. Secondly, in the case of punishment, the standards for service institutions' "diligence and responsibility" are not consistent with the views of the China Securities Regulatory Commission, and they need to be clarified through prior guidance and post-law enforcement. Other issues include how to implement the continuous supervision responsibilities of sponsors through investigation and punishment, and to study and solve the inheritance of administrative violations of administrative liability after mergers, divisions, and restructuring of intermediary service agencies, especially audit institutions.
In the long run, the most important topic is the various links of legislation, supervision and law enforcement. How to reasonably distinguish and define the responsibilities of issuers, listed companies and intermediary institutions such as sponsorship, underwriting, auditing, law, evaluation, and rating, as well as the allocation of responsibilities between these intermediary institutions. It is recommended that responsibilities, obligations, and risks should be matched with positioning, rights, and benefits, and achieve precise blows, that is, who to punish and which nerve to hurt can better prevent fraud. At the same time, we must also consider the actual professional ability and professional expertise. Another noteworthy issue is that the service agency is currently held accountable for "failure to perform its duties diligently" based on Article 223 of the Securities Law, "issuing false records, misleading statements or major omissions". It should be noted that it can also be held accountable for "violating business rules" in accordance with Article 226 of the same law, and "failure to preserve, forge, tamper with or damage to relevant documents and materials in accordance with Article 225".
(The author is a professor at China University of Political Science and Law)
