Penalties for unlawful acts of information disclosure Judicial review of administrative acts in the process of linkage

【Facts】

Hua Mou Co., Ltd. is controlled by the Wang family, with Wang serving as the chairman of the board, one of the actual controllers, and a number of relatives serving as directors. In order to provide financial support to the family group company, Wang instructed others to set up a number of subsidiaries to provide funds to the family group company through false business. The relevant periodic report of a company did not disclose the above situation, and the financial data of the relevant periodic report was falsely recorded.

In January 2018, the CSRC made an administrative penalty decision and a market ban decision against Hua Company and its relevant responsible personnel, finding that the above-mentioned acts of Hua Company constituted an illegal act of information disclosure as described in the 2005 Securities Law. The CSRC decided to impose a fine on Hua and Wang, and imposed a lifetime ban on Wang from the securities market, and banned other responsible personnel from the securities market for 5 to 10 years.

The parties were dissatisfied with the above penalties and decisions and filed a lawsuit, and both the court of first instance and the court of second instance ruled to dismiss the lawsuit. At the same time, the CSRC transferred the clues of the suspected crimes of the relevant personnel of a Hua company to the public security organs in accordance with the law. After the case is transferred to criminal justice for suspected criminal offenses, the validity of the administrative determination opinions issued by the securities regulatory departments is a point of contention that has attracted widespread attention in judicial practice.

【Divergence】

False information disclosure is one of the main forms of illegal acts in the securities market, and the determination of illegal acts of information disclosure is the basic issue of securities criminal offenses. When a party initiates an administrative lawsuit against an administrative determination opinion issued by a securities regulatory department, because it involves the issue of the articulation of execution, the people's court should directly adopt the administrative determination opinion. One view is that the judicial organs' re-identification of illegal acts of information disclosure is an ultra vires of the duties of the securities regulatory department, and the listed company is administratively punished by the securities regulatory department, and should be investigated for criminal liability when the false information disclosure reaches a serious circumstance. One view is that the illegal acts of information disclosure determined by the securities regulatory authorities do not necessarily have the effect of confirmation in judicial proceedings, and whether the acts involved in the case constitute the criminal acts of information disclosure in criminal proceedings still need to be examined by the court.

【Comment】

I agree with the second view for the following reasons:

First of all, the determination of illegal acts of information disclosure needs to be determined by comprehensively determining relevant provisions such as the Securities Law, the Criminal Law, and the Minutes of the Symposium on Several Issues Concerning the Trial of Evidence in Securities Administrative Punishment Cases. The standards for reviewing administrative penalties and criminal liability are not the same, the standard of proof for criminal justice is higher than the standard of proof for administrative law enforcement, and the illegal act of information disclosure subject to administrative punishment does not necessarily constitute a criminal offense, and should be based on whether the undisclosed information seriously harms the interests of shareholders or other persons, or has other serious circumstances as a requirement. In this case, Wang was both the chairman of the board of directors of the company and the actual controller of the company, and the CSRC found that he led, participated in or instructed others to carry out illegal acts of information disclosure, and the related party transactions that the company involved in the case did not disclose. Therefore, although the securities regulatory authorities have confirmed that the actual controller of the company involved in the case instructed the listed company to disclose information in violation of the law and made a penalty decision in order to cover up the fact of capital occupation, it still needs to be judicially reviewed to determine whether the act constitutes a securities criminal offense.

Second, the legal nature and application procedures of administrative determination opinions should be further clarified. This involves a pre-procedural issue, that is, whether the court needs to re-examine whether the acts involved in the case constitute the violation of information disclosure, and whether the res judicata of administrative adjudication can directly constrain the judgment of the criminal procedure on the same issue, and then directly determine the crime and the non-crime. The Opinions on Several Issues Concerning the Application of Law in the Handling of Criminal Cases of Illegal Fund-raising issued by the Supreme People's Court and other three departments stipulate that if the administrative department does not make a determination of the nature of illegal fund-raising, it will not affect the investigation, prosecution and trial of criminal cases of illegal fund-raising. The "Several Specific Issues concerning the Current Commercial Trial Work" stipulates that the administrative punishment of the regulatory authorities and the effective criminal judgment will no longer be regarded as a precondition when the case is filed and accepted. The Minutes of the Symposium on the Trial of Bond Dispute Cases by Courts across the National People's Congress stipulates that if a request is not accepted or dismissed as a result of an administrative punishment by the relevant organ or an effective criminal judgment document, the people's court will not support it. Therefore, whether the illegal act of information disclosure constitutes a criminal offense should still be reviewed in accordance with relevant laws and judicial interpretations, and in conjunction with the constituent elements of criminal responsibility.

Third, administrative determination opinions have important reference significance for criminal justice procedures and their judgments. Information disclosure violations are a highly professional threshold area, the securities regulatory departments on the determination of false information disclosure has professionalism and authority, it is based on the investigation and collection of evidence after the submission of sufficient evidence, the conclusions made in accordance with the law, by its review and determination can give full play to professional advantages. As long as the determination is related to the objective facts, reasonable and relevant, it can be used as evidence, and its legality can only be confirmed after the administrative determination opinion under litigation has undergone judicial review. The Opinions on Several Issues Concerning the Handling of Securities and Futures Violation and Crime Cases (Securities Regulatory Commission [2011] No. 30) issued by the Supreme People's Court and four other departments stipulate that securities regulators may issue a determination opinion to the judicial organs on the professional issues of securities and futures involved in the case according to the needs of the judicial organs in handling the case. Therefore, judicial review should adhere to the principle of criminal priority when linking the execution of the same illegal act, and make a determination and judgment on the dispute points in the case on the basis of referring to the opinions of various parties.

The new Securities Law adds requirements for timeliness and fairness on the basis of the truthfulness, accuracy and completeness of information disclosure. In handling cases of illegal acts of false information disclosure, the core of the people's court's review of whether it constitutes a securities criminal offense lies in determining whether the undisclosed information is an illegal act, and whether the determination of information disclosure violation in the administrative punishment decision can be used as a prerequisite for the people's court to review the securities criminal offense. The author believes that on the basis of respecting the investigation opinions of the securities regulatory departments and serving as an important reference, the people's courts should conduct a comprehensive judicial review and judgment on the determination opinions they provide and the nature of their facts and laws. At the same time, we should strengthen the professionalization and type of trial of financial trials, and improve the judicial review mechanism for the determination of illegal acts of information disclosure under the framework of the linkage of executions.

(Author Affilications:Beijing Fangshan District People's Court)