Huanrui Century shareholders won the final judgment of the claim, and intermediaries such as New Era Securities were jointly and severally liable

On January 18, Huanrui Century (000892) announced that the Chongqing Municipal Higher People's Court had concluded the trial of 14 investors suing the company for securities misrepresentation liability dispute cases and made a second-instance judgment, ruling to compensate investors for losses of 3,846,548.55 yuan. Lawyers in the industry believe that this announcement means that the claim of the early investors against Huanrui Century has been finally won, and the follow-up will enter the payment stage.

On the same day, Huanrui Century announced that as of the date of this announcement, the company had received a total of 145 cases of prosecution materials, including: (1) 14 cases have been adjudicated in the second instance, with a total compensation amount of 3.8465 million yuan; 17 cases have been settled, with a compensation amount of 1.706 million yuan; 8 cases have not been decided, involving a total amount of 13.3651 million yuan; (2) 106 cases have been settled before litigation, with a compensation amount of 6.2613 million yuan.

Lawyer Xu Feng, director of Shanghai Jiucheng Law Firm, introduced that the Huanrui Century investor claim case he represented was divided into two parts, one part of which was because he did not agree to mediation and currently received a winning judgment from the investor, the court ruled that Huanrui Century paid part of the losses to the investors, and Huanrui Century had appealed against the first-instance judgment; the other part of the investors agreed to mediation, and after the two parties reached mediation, the mediation money has been paid in place.

The announcement of Huanrui Century shows that as of now, the company's various business operations are normal. In 2020, the Company has accrued estimated liabilities of RMB14.6137 million for the 27 securities misrepresentation liability dispute cases that have been filed and tried in this case. It is expected that the judgment of the above lawsuit will affect the profit in 2021 by an amount of about -4 million yuan.

The investor's claim originated on November 5, 2019, when Huanrui Century announced that it received the CSRC's Administrative Penalty Decision Letter, because Huanrui Film and Television failed to provide true, accurate and complete financial data for 2013, 2014, 2015 and 2016, resulting in huanrui century publicly disclosing major asset restructuring documents with false records and major omissions, and the CSRC imposed top administrative penalties on Huanrui Century.

Lawyer Xu Feng believes that according to the above penalties of the CSRC and the previous effective judgment, investors who bought Huanrui Century shares between February 1, 2016 and July 18, 2017, and sold or continued to hold Huanrui Century shares after July 18, 2017, can initiate this claim, and the probability of compensation after the lawsuit is very high.

In addition to punishing Huanrui Century, the Chongqing Securities Regulatory Bureau also imposed a penalty on New Era Securities on November 4, 2021. According to the Chongqing Securities Regulatory Bureau, Huanrui Film and Television inflated its operating income by 69,396,226.42 yuan in 2013 due to early recognition of revenue, and in 2014, it inflated its operating income by 27,894,339.63 yuan due to early recognition of revenue. New Era Securities did not implement sufficient verification procedures, did not obtain sufficient and effective information to prudently verify the operating income of Huanrui Film and Television, and lacked due caution in the verification process, resulting in the failure to find that Huanrui Film and Television confirmed in advance the operating income of the TV series "Ancient Sword Qitan" and "Love of The Micro Era" in 2013, and the fact that the operating income of the TV series "The Four Famous Arrests of Teenagers" was confirmed in advance in 2014, and the "Independent Financial Consultant Report" issued by Huanrui Film and Television was falsely recorded. Therefore, it was decided to order New Times Securities Co., Ltd. to make corrections, confiscate 5 million yuan of financial consulting business income, and impose a fine of 15 million yuan.

In addition, Beijing Xinghua Certified Public Accountants was also involved in the Huanrui Century case, and the Chongqing Securities Regulatory Bureau believed that Xinghua was the audit service institution of the major asset restructuring of Huanrui Century United Co., Ltd. in 2016, but did not perform effective sales revenue audit procedures and there were false records in the matters of financial statement approval and reporting, so on April 22, 2021, it ordered Xinghua to make corrections, confiscate the audit business income of 2.0883 million yuan, and impose a fine of 6.2649 million yuan.

Article 163 of the Securities Law stipulates that securities service institutions shall diligently and conscientiously verify and verify the authenticity, accuracy and completeness of the contents of the documents and materials on which they are based in preparing and issuing audit reports and other assurance reports, asset appraisal reports, financial consultant reports, credit rating reports or legal opinions for securities business activities such as the issuance, listing and trading of securities. Where the documents they produce or issue contain false records, misleading statements or major omissions, causing losses to others, they shall bear joint and several liability for compensation with the client, except where they can prove that they are not at fault.

In the recent LeTV investor claim case, which has attracted widespread market attention, the plaintiff investors took Ping An Securities, Zhongtai Securities, Zhongde Securities, Anda Certified Public Accountants, Huapu Tianjian Accounting Firm, ShineWing Anderson Ande Ande Accounting Firm and other intermediary institutions as co-defendants, and demanded joint and several liability for compensation. In the previous domestic first special representative litigation case, Kangmei Pharmaceutical, the court also ruled that Zhengzhong Zhujiang Accounting Firm and its responsible person and Kangmei Pharmaceutical should bear joint and several liability for compensation.

Lawyer Xu Feng said that in the Huanrui Century investor claim case, it may be that the compensation payment has been paid in a timely manner because the compensation payment is small, if the amount is larger, the investor is worried about the final solvency, and the follow-up can be new era securities, Xinghua Club and other intermediary institutions as co-defendants, requiring them to bear joint and several liability for compensation with Huanrui Century.

The above-mentioned lawyer suggested that although the shareholders have won two trials in the early stage of compensation, but there is not much time left for the shareholders, referring to some of the practices of the shareholders' claim cases, Xu Feng believes that by the end of October 2022, the statute of limitations for the Huanrui Century Investor Claim Case will exceed, there are only about nine months left, the Huanrui Century case has not adopted any representative litigation model, and it is necessary to take the initiative to defend the rights through litigation and other forms to have the opportunity to obtain compensation.

This article originated from China Net Finance