Caixin Weekly | Collective Securities Lawsuits Face Challenges Four Years After Launch: Local Judicial Fairness and Execution Difficulties Persist (AI Translation)
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文｜财新周刊 王娟娟 全月
By Caixin Weekly's Wang Juanjuan and Quan Yue
文｜财新周刊 王娟娟 全月
By Wang Juanjuan and Quan Yue, Caixin Weekly
随着新《证券法》的实施，中国版证券集体诉讼制度确立至今已有四年多。立法初衷是希望聚沙成塔，为投资者撑腰，威慑证券违法犯罪行为以及减轻各方诉累，但四年多来，真正落地的案例稀少，法院不愿意用、当事人积极性不高、最终执行金额低，集体诉讼制度尚未充分发挥对证券违法犯罪行为的震慑作用。
With the implementation of the new Securities Law, China's version of the securities class action system has been established for over four years. The original legislative intent was to band investors together to provide them with support, deter securities violations and crimes, and reduce litigation burden for all parties involved. However, over these four-plus years, actual implemented cases have been rare. Courts have been reluctant to adopt the system, parties involved have shown little enthusiasm, and the final settlement amounts have been low. Consequently, the class action system has not yet fully played its role in deterring wrongdoing in securities markets.
2024年12月16日，连续多年财务造假的美尚生态（300495.SZ，已退市）和金通灵（300091.SZ）相继公告，因证券虚假陈述责任纠纷分别被投资者诉至深圳中院和南京中院；两家法院均决定，将适用普通代表人诉讼程序审理案件。12月20日，中证中小投资者服务中心（下称“投服中心”）就两案进展发声，称将依法分别接受50名以上投资者特别授权，申请参加诉讼并转换为特别代表人诉讼程序。
On December 16, 2024, Meishang Ecology Co. (300495.SZ, delisted) and Jintongling Co. (300091.SZ), both with years of financial fraud scandals, announced they were being sued by investors for false statements in securities disclosures. The cases were filed in the Shenzhen Intermediate People's Court and the Nanjing Intermediate People's Court, respectively. The courts have decided to apply a common representative litigation procedure for these cases. On December 20, the China Securities Investor Services Center (known as "Investor Service Center") commented on the progress of these cases, stating that it would lawfully accept special authorization from over 50 investors in each case and apply to participate in the litigation, converting the cases to a special representative litigation procedure.
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- China's securities class action system, established over four years ago, has seen limited actual cases, with courts and stakeholders hesitant to embrace it, resulting in ineffective deterrence of securities violations.
- Notable cases like Kangmei Pharmaceutical and Feilo Acoustics have concluded, but complexities in damage assessment hinder widespread litigation; intermediary agencies often face joint liability due to companies' lack of funds.
- The new Company Law, effective July 2024, enhances minority shareholder protection, but practical challenges remain, including low investor participation and enforcement difficulties in the class action process.
[para. 1] The article by Wang Juanjuan and Quan Yue from Caixin Weekly examines the implementation and effectiveness of China's securities class action system over four years. Despite its intended purpose to unite investors and deter securities violations, the system has seen minimal action. Courts show reluctance, participants lack enthusiasm, and the settlement amounts achieved are low, failing to curb misconduct in the securities markets as initially anticipated.
[para. 2] On December 16, 2024, Meishang Ecology Co. and Jintongling Co. were sued by investors for providing false securities disclosures in Shenzhen and Nanjing courts, respectively. The courts decided to employ a common representative litigation procedure for these cases. The China Securities Investor Services Center is involved, potentially converting them to special representative litigation, marking an evolution in the system.
[para. 3] The article describes the ordinary representative litigation as a method where plaintiffs are determined at filing time and favors "opt-in" principles. The special representative litigation uses "opt-out" principles, which might enhance mass compensation for infringed parties.
[para. 3] A regulatory official shared their initial vision for a balance between ordinary and special representative litigations, aiming for about four to five special cases annually. This target faces challenges due to increasing corporate misconduct, with many companies delisting over violations, now feasible for representative litigation.
[para. 4] Caixin's analysis showed limited representative litigation cases pursued under the 2020 Supreme People's Court interpretation. Only a handful of civil tort litigation cases for false statements have progressed as such, with some notable special representative examples.
[para. 5] Challenges persist, with local courts shelving class action initiatives due to underdevelopment and inadequate legal systems. Representative litigation remains difficult due to local interests, and is restricted by court resources across regions.
[para. 6] The trial phase has further hurdles such as defining claims, and determining reasonable damages. May adjustments are necessary in the shared liability among intermediaries, with accurate scope and reasoning affecting many related claims and their amounts.
[para. 7] Yu Hao notes that private law efforts need to encourage market participants in governance, while obligatory public law actions offer limited remedies. The new Company Law, effective from July 2024, better protects minority shareholders with rights further securing their interests.
[para. 8] The article explains how investors may choose representative plaintiffs when filing claims against listed companies under the new 2020 Securities Law, providing mechanisms for both ordinary and special representative actions, expanding investor recourse measures.
[para. 9] Practical legal experiences depict initiated cases becoming limited. Few plaintiffs engage in the current Chinese securities class actions, whereas triggered plaintiffs in the system often obscure ideal compensation.
[para. 10] Details about the differences of calculations between entities like the Shanghai Advanced Institute of Finance and China Securities Investor Services Center surface. Disputes over differing evaluation methods signal diverse impact assessments on adjusting for market-related risks.
[para. 11] The professor at Tsinghua University's opinions indicate that while intermediaries in joint liability face legal scrutiny, their compared culpability proves less severe often than against perpetuating entities like listed companies.
[para. 12] Modifications in liability regularly occur, showcasing varied judicial decision-making styles, with intermediaries facing different ratio responsibilities, raising questions over uniformity in legal standards.
[para. 13] Further critiques suggest constant updates in liability extend joint accountability terrain. However, lack of coherent standards creates inconsistencies, leading to complex compensatory litigations.
[para. 14] The low proportion of participating investors in securities litigation shows a stark contrast in theory versus practical gains, whether through litigation or settlements. Moreover, enforcement remains problematic, further complicating compensatory goals despite legal victories.
[para. 15] Results often fall short of investor expectations. The lengthy litigation process adds to the obstacles investors face when seeking compensation, prompting alternatives like settlements or mediation procedures.
[para. 16] Expert insights challenge sole reliance on public regulation, advocating corporate governance participation from institutional investors as a preventive action. Meanwhile, the new Company Law offers a refined legal structure protecting minority investors, although actual implementation still needs enhancement.
[para. 17] The growing role of institutional investors in governance is emphasized, alongside societal and media involvement to improve securities markets. Enhancing class action implementation may demand comprehensive public and private sector collaborations, steering a broader safeguard for investors and market improvements.
- Meisheng Ecology
- Meisheng Ecology (300495.SZ) was involved in financial fraud and faced securities false statements disputes. Investors sued the company, leading to litigation in Shenzhen Intermediate People's Court. The case is to be handled using the ordinary representative litigation procedure. The China Securities Small Investor Services Center is involved, seeking to convert it to a special representative litigation procedure. Meisheng Ecology has been delisted.
- Jin Tongling
- Jin Tongling (300091.SZ) was involved in a case of securities false statement liability disputes and was sued by investors at Nanjing Intermediate People's Court. The court decided to use the ordinary representative litigation procedure for the case. The China Securities Investor Services Center expressed its intention to join the lawsuit, potentially converting it to a special representative litigation.
- Kangmei Pharmaceutical
- Kangmei Pharmaceutical was involved in a landmark securities collective lawsuit over financial fraud. The case, first accepted in late 2020, concluded in November 2021 with the Guangzhou Middle Court ruling that 52,000 investors could receive 2.459 billion CNY in compensation. The China Securities Investor Service Center played a key role by representing 56 rights holders in the lawsuit.
- Zeda Yisheng
- Zeda Yisheng is one of the companies involved in a special representative lawsuit, a part of China's securities collective litigation system. The case against Zeda Yisheng was concluded in December 2023. It is mentioned alongside other significant cases like Kangmei Pharmaceutical, highlighting the challenges and complexities in implementing China's collective litigation system for securities law violations.
- Feilo Acoustics
- Feilo Acoustics (600651.SH) was one of the companies involved in a collective securities lawsuit under China's ordinary representative litigation system. The case, related to securities false statement liability, was resolved, making it one of the few cases completed under the ordinary representative litigation procedure since the judicial interpretation on securities dispute representative litigation was issued in 2020.
- Huifeng Shares
- Huifeng Shares (002496.SZ) is mentioned as a case of ordinary representative litigation which, despite being numerous, has taken a long time to conclude. The article addresses the challenges in implementing collective litigation in China, highlighting the lengthy process and limited successful cases like Huifeng Shares, which illustrates the difficulty in utilizing this legal framework effectively.
- Bank of Beijing
- The article mentions Bank of Beijing in the context of a lawsuit involving Kangde Xin. Bank of Beijing is implicated as one of the 40 defendants in a case related to the company's cooperation with Kangde Xin. The lawsuit is noted for its potential record-breaking scale in terms of claimants and claims amounts.
- LeTV
- LeTV, one of the companies mentioned in the article, has been involved in ordinary representative litigation. In a lawsuit concerning false statements, only its key figure, Jia Yueting, faced full joint liability, while other directors had minor responsibilities. In the litigation, Ping An Securities was held 10% liable, and three accounting firms shared varying liabilities. Despite substantial claims in the first trial, the overall outcome for investors remains uncertain due to potential appeals and associated costs.
- Dongxu Optoelectronics
- Dongxu Optoelectronics is mentioned as one of the companies involved in ordinary representative litigation. The case concerning Dongxu Optoelectronics, which has been delisted, falls under the purview of the Chinese securities collective lawsuit system that aims to address issues of financial fraud and investor compensation. The case exemplifies the challenges and procedural complexities associated with such litigation in China's judicial context.
- Kangde Xin
- Kangde Xin's case, started in December 2024, involves 40 defendants, including Beijing Bank, leading to potentially record-setting claims. In its 2023 restructuring plan, 2,910 stock investors claimed 8.26 billion yuan. This illustrates the significant scale and complexity of such representative lawsuits in China's securities market.
- Lanfeng Biochemical
- Lanfeng Biochemical (002513.SZ) is named as one of the A-share listed companies involved in ongoing or settled ordinary representative litigation cases.
- Etong Century
- Etong Century (宜通世纪, stock code 300310.SZ) is mentioned in the context of ongoing or concluded ordinary representative litigation cases associated with the Chinese securities collective lawsuit system. There are limited details provided specifically on Etong Century, but it is grouped with other companies like Leshi Internet, Kangdexin, and Blueview Biotech in such litigation contexts.
- Liyuan Precision
- Liyuan Precision (002501.SZ) is the only A-share listed company in Liaoyuan, Jilin Province, with state-owned shares. After being penalized for financial fraud, investors began suing from 2018. Despite requests for representative litigation based on the established system, the local court did not respond clearly until December 2024, when it decided to use a model judgment mechanism instead of initiating representative litigation.
- Founder Technology
- The article mentions that in the case involving Founder Technology (600601.SH) and the issue of fictitious statements, Shanghai High Finance (Shanghai Gaojin) used a synchronized comparison method with market indices to assess the impact of market and sector factors on investment losses, employing a multi-factor quantitative model to adjust for system and operational risks when calculating investors' damages.
- China Merchants Securities
- China Merchants Securities was involved in a judicial case related to false statements made by a company. Initially, they were judged to bear full joint liability. However, in a subsequent appeal, the court revised the decision, requiring them to assume 25% of the compensation liability, down from the initial assessment.
- Guosen Securities
- Guosen Securities was involved in the Huaze Cobalt & Nickel case, where initially it was ordered to bear 40% joint liability, which was later revised to 100% joint liability in the second trial. This case highlights the changes and challenges faced by intermediary institutions such as securities firms in China's collective litigation landscape.
- Ping An Securities
- Ping An Securities was involved in the LeTV case, where it was held liable for 10% joint liability among intermediary institutions. This was part of a broader trend of intermediary institutions being held accountable to varying degrees in securities misconduct cases.
- July 2020：
- The Supreme People's Court issued the judicial interpretation titled 'Provisions on Several Issues of Litigation by Representatives in Securities Disputes'.
- November 2021：
- Kangmei Pharmaceutical special representative litigation case was concluded.
- December 2023：
- Zeda Yisheng special representative litigation case was concluded.
- End of March 2024：
- The Feilo Acoustics securities false statement liability case concluded with a total compensation of approximately 329 million yuan for 2,000 investors.
- December 4, 2024：
- The Liaoyuan Intermediate Court clarified that it would employ a model judgment mechanism to hear the Li Yuan Shares case without initiating representative litigation.
- Early December 2024：
- The Kangde Xin case was set to commence, with as many as 40 defendants.
- December 16, 2024：
- The lawsuits against Meishang Ecology Co. and Jintongling Co. were filed in Shenzhen Intermediate People's Court and Nanjing Intermediate People's Court, respectively.
- By December 16, 2024：
- Meishang Ecology Co. and Jintongling Co. announced they were being sued by investors for false statements in securities disclosures.
- December 20, 2024：
- The China Securities Investor Services Center commented on the progress of the Meishang Ecology and Jintongling cases.
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