Comment On LETV Case Between The New And Old Securities Laws

Huang Tao (researcher, doctoral supervisor, Guanghua law school, Zhejiang University)

On September 7, letv.com, a listed company, announced that it had received the prior notice of administrative punishment and market ban issued by China Securities Regulatory Commission (CSRC). The investigation of the company's suspected illegal and fraudulent information disclosure has been completed. The CSRC intends to order LETV to make corrections, give a warning and impose a fine of 600000 yuan, as well as a fine of 5% of the raised funds (2 40 million yuan).

If the CSRC does implement administrative punishment in accordance with the contents of the notice in advance, it will set a record of the highest penalty amount in the history of China's securities market. Of course, considering the negative impact of LETV on the protection of investors in China's securities market in the past few years, this listed company can be said and indeed "deserves" such a degree of punishment.

The more important background is that in recent years, it can be said that it is in the "strike hard cycle" against illegal and criminal activities in China's securities market. On July 12, this year, the 36th meeting of the financial stability and Development Commission of the State Council proposed to "fully implement the zero tolerance" requirement for illegal and criminal acts in the capital market, take various measures to strengthen and improve the securities law enforcement, and spare no effort to maintain the healthy, stable and healthy state of the capital market Even on July 30, the Political Bureau meeting of the CPC Central Committee at the highest level announced that "we should promote the construction of capital market infrastructure, crack down on illegal securities activities in accordance with the law, and promote the stable and healthy development of the capital market".

It should be noted that, based on the principle of non retroactivity of the law, the punishment of LETV is made according to the securities law before the amendment, and the punishment results listed in the prior notice apply to the top standard of the "old law". In the process of revising the securities law, the criticism of the public and the media on the weak punishment of fraud in China's securities market has received positive response from legislators. The new securities law, which came into effect on March 1 this year, has greatly raised the standard of punishment for illegal acts. Assuming that LETV's information disclosure is illegal and applicable to the new securities law, then according to the provisions of Article 181, "the issuer conceals important facts or fabricates major false contents in the securities issuance documents announced by it Those who have issued securities will be fined more than 10% and less than one time of the amount of funds illegally raised. "The amount of penalty for LETV is far more than 240 million yuan, but it is twice to 20 times the number. Therefore, we can fully imagine that LETV's penalty amount record in the A-share market is likely to be broken by "latecomers" in the era of the new securities law.

In addition, after the implementation of the new securities law, the criminal law amendment (11) (Draft), which has been submitted to the Standing Committee of the National People's Congress for deliberation, has also taken a clear-cut stand in amending the provisions concerning criminal acts in the securities market, with the purpose of increasing punishment. For example, the "crime of fraudulent issuance of stocks and bonds" clause increases the behavior mode of controlling shareholders and actual controllers to organize and direct the implementation of fraudulent issuance of stocks. In addition, it also breaks through the upper limit of five-year imprisonment in terms of sentencing rules. The article of "crime of illegal disclosure and non disclosure of important information" expands the subject of the crime to the unit; the maximum sentence is increased from three years to ten years; the behaviors of company, controlling shareholder, actual controller and instigating relevant illegal disclosure and non disclosure of important information are also included in the scope of this crime.

There is no doubt that the changes in the legal rules of the capital market are releasing the signal that the legislators and regulators should make greater efforts to punish illegal acts. However, it may be clear here that we have been saying that we should increase the cost of securities illegal and criminal activities. However, the increase in the so-called illegal and criminal costs is not simply equivalent to making the sanctions rules in the securities law and criminal law more stringent. This may prove to the investor community that the public sector is "doing things", but whether the behavior of potential violators is more serious Multi deterrence is determined by many reasons. As the father of criminal law, Beccaria said, the deterrent power of criminal law does not come from its severity, but from its inescapability.

The same is true of law enforcement in the securities market. Although it is important to set up several benchmark cases (such as LETV), it is difficult to maintain a lasting and stable coverage rate of law enforcement and eliminate the "black number" of crimes as far as possible. However, the public law enforcement activities with administrative control departments as the core have their inherent weaknesses. Therefore, the maintenance of securities market discipline is in fact an ideal state A three-dimensional framework covering market constraints, administrative supervision, judicial relief, industry self-discipline and media supervision, if the focus of system implementation is only focused on public law enforcement, it will inevitably lead to the problem of "regardless of the end". On the other hand, the implementation of "strike hard" laws will also have its negative effects. A negative example is the Sarbanes act of 2002 issued by the United States after the Enron incident. Although the law passed by Congress responded to the demands of public opinion at that time, a series of practices, such as raising the criminal responsibility to 25 years' imprisonment, would obviously have a negative impact on the attractiveness and competitiveness of the US financial market. Only then did the US SEC's flexible practice of exempting small and foreign companies from applying relevant laws and regulations appeared.

In addition to the administrative punishment of the CSRC, whether LETV investors can obtain full compensation for damages through judicial relief is also a focus after that. Although the new securities law introduces the representative litigation system, which greatly facilitates the development of investor groups' rights protection activities, for LETV, which has been seriously insolvent, after paying a large amount of administrative fine, how much money can be left to compensate the market investors? Although Article 220 of the new securities law stipulates that "in violation of the provisions of this law, civil liability for compensation and payment of fines, fines and illegal income shall be borne. If the property of the offender is insufficient to pay, the priority shall be given to bear civil compensation liability". However, the operability of this article is still questionable. Similar provisions existed in the original law, but the management of fines and confiscations involves several administrative departments Therefore, there is a high coordination cost. In particular, Article 222 of the new securities law still retains the stipulation that "all fines collected and illegal gains confiscated in accordance with this Law shall be turned over to the state treasury". It has not accepted the proposal made by scholars in the process of amending the law that the fine and confiscated money should be used to set up a special Investor Compensation Fund.

However, in the future development of LETV's case, the system of "first compensation" with Chinese characteristics may be applied again, that is, the third party (usually securities dealers) who bear joint and several liability will "voluntarily" contribute capital, set up compensation fund first, pay compensation to the damaged investor group, and then pursue liability from listed companies and other responsible parties. It has been practiced in the cases of Wanfu Shengke, hailianxun and Xintai electric. Article 93 of the new securities law also makes this practice a culture, specifically stipulates that "if the issuer causes losses to investors due to fraudulent issuance, false statement or other major illegal acts, the controlling shareholders, actual controllers and relevant securities companies of the issuer may entrust investor protection institutions to reach an agreement with the investors who have suffered losses on compensation matters, so as to make compensation in advance 。 After the compensation is made in advance, it may claim compensation from the issuer and other joint and several liability persons in accordance with the law. "

However, in the final analysis, the so-called "compensation in advance" system is a practice with great planned economy color. Under the requirements of the regulatory authorities, securities companies undertake more market "stability" responsibilities, to a certain extent, prevent the negative market and social effects brought about by the concentrated outbreak of negative emotions of investors. The problems brought about by this system in the implementation process are also obvious. The compensation standard and responsibility distribution based on judicial judgment may be blurred. Once it becomes the substitute of judicial relief, various disadvantages of administrative treatment will appear. In the case of LETV, in the face of insolvent listed companies, will Ping An Securities, the sponsor securities company, once again "voluntarily" play the role of "deep pocket" to "save" investors who have suffered heavy losses? It's going to be an interesting topic.

Further development, for the illegal information disclosure of LETV, will the judicial department start the criminal responsibility investigation procedure? If it is launched, when Jia Yueting, as an executive and actual controller of the company, will take the initiative or passively to fly back home, which will become the focus of financial media again.

?