Deeply regarding the 84th issue of supervision| implement the "zero tolerance" requirement, aside from the accountability of independent directors, the "key minority" entities need to enhance their reverence

21st Century Business Herald reporter Yang Ping reported from Shenzhen

On November 12 this year, the Guangzhou Intermediate People's Court ruled in the first instance that Kangmei Pharmaceutical and related responsible persons compensated 52,000 investors for 2.459 billion yuan, marking the successful implementation of the litigation system for special representatives in China's capital market. A few days ago, In his speech at the 18th Global Annual Conference of the International Financial Forum, Wang Jianjun, vice chairman of the China Securities Regulatory Commission, responded to the society's concerns about the "Kangmei case", emphasizing that the "Kangmei case" declared that the era of false statements and fraudulent issuance of illegal costs was too low, and showed that the responsibility of listed companies and intermediaries was a real move.

It is worth noting that, compared with the discussion of the significance of the case itself, the five independent directors involved in the case were sentenced to bear joint and several liability of up to about 369 million yuan in total, and accompanied by the news of the departure of some independent directors, which triggered new thinking by all parties in the market on the independent director system and its responsibilities. In fact, there are more than 4,500 listed companies in the A-share market, more than 14,000 independent directors, and there are many turnovers every month, although due to the impact of the "Kangmei case", the number of departures may increase more than in the past, but from the overall data, the situation of independent directors leaving this year has not increased significantly, let alone the so-called "tide of departures".

It is true that the "Kangmei case" has triggered in-depth reflection on the performance of independent directors and the design of the system, but its significance is far from limited to this. As the first case of China's class action judicial practice since the implementation of the new securities law, it can be described as a pioneering milestone in the history of the capital market. We may wish to take the "Kangmei case" as an opportunity to see what the Chinese version of the securities class action lawsuit is going on, and the changes in the market ecology brought about by it.

In layman's terms, a class action or class action can be understood as a class action brought by a small number of representatives for a common interest. It is generally believed that class actions began in the United Kingdom as early as the United Kingdom, and developed and flourished in developed countries outside the United States and Germany, of which the securities group litigation system in the United States is the most developed and has become a common means of civil claims used by shareholders.

The birth of the securities class litigation system is mainly to solve the problem of compensation for many small and medium-sized investors who have been victimized by securities fraud, and is a special legal system arrangement. In securities civil compensation dispute cases, compared with defendants such as listed companies that commit illegal and fraudulent acts, individual investors are in a disadvantageous position in litigation and rights protection due to factors such as economic strength and professional ability. Long litigation cycles and high litigation costs often deter them from initiating lawsuits. In addition, the number of investors involved in the claim is relatively large, the geographical location is relatively dispersed, and if all of them are directly involved in the litigation process, it will bring huge communication and coordination costs.

In this regard, the securities group litigation system has effectively solved the above pain points. In particular, the U.S. market has introduced a winning gratuity system in securities class actions, that is, the plaintiff's litigation costs are paid in advance by the law firm representing the class action, and after winning the lawsuit or reaching a settlement, the lawyer draws a certain percentage of the compensation fee. Therefore, under the strong support and promotion of professional law firms, US securities group lawsuits often respond to hundreds of responses, and eventually involve a huge number of compensation and the amount of compensation, and the cost of concluding a securities group lawsuit is also very expensive, which can be called the "big killer" of listed companies' violations.

The latest trends in U.S. securities class action lawsuits in 2020 released this year by the National Association for Economic Research Economic Consulting (NERA) shows that between 2015 and 2018, the number of securities class action cases accepted by the U.S. federal courts increased sharply, and reached the highest level of 433 cases in 2018, and the subsequent settlement remained basically stable; the average settlement amount of securities class action cases in 2020 was $44 million, an increase of 50% over last year, excluding the highest value. The median settlement amount for the full year was $13 million, the highest value in nearly 10 years. In the case of Luckin Coffee, which is mired in financial fraud, the company announced in September that it could compensate investors up to $187.5 million.

Generally speaking, the overseas securities group litigation system has achieved good results in resolving the claims of small and medium-sized investors, and has also provided a useful reference for China's development and innovation of the securities illegal civil compensation dispute mechanism.

In recent years, some vicious securities fraud cases in China have been investigated and exposed one after another, and how to help the majority of damaged investors obtain timely, fair and adequate compensation has become a problem that needs to be solved urgently. The new Securities Law promulgated in March 2020 adds a special chapter on "Investor Protection", and the provisions on representative litigation are a major institutional innovation based on China's national conditions and fully drawing on the experience of mature markets in overseas markets, which is known as China's version of the class action system.

Among them, eligible investor protection institutions accept the entrustment of more than 50 investors and can participate in securities civil compensation lawsuits such as false statements as representatives. Different from the principle of "explicit joining" in ordinary representative litigation, the special representative litigation adopts the mechanism of "implicit joining and explicit withdrawal", that is, directly using the transaction data of the securities registration and settlement institution to sort out the scope of the damaged investor as the scope of the plaintiff, and if the investor does not explicitly withdraw, he tacitly joins the lawsuit.

Compared with overseas securities group litigation, China's special representative litigation is led by an investor protection institution with public interest attributes as the lead plaintiff, which on the one hand greatly saves the litigation parties' rights protection costs and improves the efficiency of rights protection, on the other hand, it also avoids the risk of indiscriminate litigation by overseas class litigation lawyers driven by the motivation of pursuing profits and even conspiring with the defendant to infringe on the interests of investors, which is conducive to guiding the development of securities class litigation behavior in a standardized and orderly direction.

In July 2020, the Supreme People's Court, the China Securities Regulatory Commission, and the China Securities Service Center for Small and Medium-sized Investors successively issued supporting normative documents such as the Provisions on Several Issues Concerning the Litigation of Representatives in Securities Disputes and the Notice on Doing a Good Job in the Work Related to the Participation of Investor Protection Institutions in the Litigation of Special Representatives in Securities Disputes, and the litigation of special representatives entered the stage of practical operation.

Taking advantage of the "east wind" of this system, the "Kangmei case" was converted from an ordinary representative lawsuit to a special representative lawsuit in April this year, and finally 52,037 investors received a total compensation of about 2.459 billion yuan, which is the largest number of plaintiffs and the highest amount of compensation for civil compensation for listed companies heard by the court so far, marking that the Chinese version of the securities class action system has moved from paper to practice, and has truly taken root on the realistic soil of China.

It is precisely such a system design, as Wang Jianjun, vice chairman of the China Securities Regulatory Commission, said, that makes up for the shortcomings of the basic system of weak civil compensation remedies for securities in China, truly promotes the formation of a three-dimensional system synergy between civil liability and administrative and criminal liability, and greatly increases the cost of securities violations of laws and regulations.

The impact of the "Kangmei case" on the market ecology is undoubtedly far-reaching. In fact, in addition to the high compensation faced by the independent directors, the actual controller, the directors and supervisors involved in the financial fraud, the accounting firm, and the signing partners are all jointly and severally liable for 2.459 billion yuan, and the 8 directors and supervisors who did not directly participate in the fraud but signed the regular reports are required to bear the joint and several liability of up to about 492 million yuan. The 12 responsible personnel, including the actual controller of the company, were also sentenced to fixed-term imprisonment of different periods. The vast majority of the above-mentioned entities, except for Ma Xingtian, the actual controller of the company, belong to professional managers.

The reflection should not stop at the independent director group. For professional managers, supervisors performing supervision duties, and intermediary institutions that should have played the role of gatekeeping, if they let the interests of the actual controller and major shareholders override the interests of the company, blindly aiding and abetting abuse, the corpse will not only face huge monetary losses and major reputation losses, but are more likely to be imprisoned and lose the most basic personal freedom.

With the gradual implementation of important laws and regulations such as the new Securities Law, the Amendment to the Criminal Law of the People's Republic of China (11), and the Opinions on Strictly Cracking Down on Illegal Securities Activities in Accordance with the Law, the joint investigation and punishment of illegal and fraudulent acts such as fraudulent issuance and information disclosure by the competent organs has been further increased, criminal accountability, administrative punishment and civil compensation have been greatly improved, the three-dimensional responsibility investigation system of "civil execution" has been continuously improved, and the spirit and goal of "zero tolerance" and "punishing the first evil" in the capital market have formed a clear orientation The crackdown on securities violations has risen to a whole new level.

In the face of cases of securities violations with bad impact and serious circumstances, such as false statements and fraudulent issuance, the regulator has used heavy penalties and heavy punches to warn all participants in the capital market with "heavy penalties": all securities violations will eventually face severe punishment, and those who do evil must pay a heavy price.

In the face of market changes, all market participants, including listed companies, proposed listed companies and their responsible personnel, must learn lessons, standardize operations, improve quality, and give investors a real, transparent, and compliant listed company.

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