A few days ago, the China Securities Regulatory Commission mentioned in the study and Xi implementation of the spirit of the Central Economic Work Conference that it will intensify the crackdown on financial fraud, fraudulent issuance and other illegal acts, and continue to purify the market ecology.
Judging from the recent penalties of listed companies, the intensity and speed of punishment are significantly greater than in the past. Since December, a number of companies, including *ST Tai'antang, Ruyi Group, *ST Huichen, *ST Potian, etc., have been fined more than 10 million yuan for financial fraud or serious information disclosure violations, and Senyuan Group has been fined 616 million yuan for manipulating the securities market.
While "long teeth and thorns" and strict punishment for typical and serious violations, "timely correction" and "early and small pain" for minor problems have become another important direction for the CSRC. For example, a small amount of illegal shareholding reduction is now also required to repurchase all the reduced parts, and if the transaction profits are handed over to the listed company, if the loss is borne by themselves.
In the opinion of the interviewees, the comprehensive registration system needs a more transparent and fair market environment, and the supervision of the capital market chaos is increasing, and it is bound to be further strengthened. The severity of corporate violations varies from one to the other, and not all violations are punished as severely as possible. At present, the "fines" issued for different situations reflect the characteristics of specific analysis of specific problems, and strengthen the punishment after the fact for the more serious circumstances, and strengthen the timely correction for the less serious circumstances, which will help stabilize the expectations of business entities, build a good legal environment, and promote the long-term development of the capital market.
Serious violations: tens of millions of fines are frequent
At the annual meeting of the 2023 Financial Street Forum held on November 8, Yi Huiman, chairman of the China Securities Regulatory Commission, said when talking about the next development of the capital market, he will highlight the root cause of the problem, strengthen cooperation with the public security and judicial organs, continue to improve the anti-counterfeiting system and mechanism of the capital market, promote the improvement of the administrative, civil and criminal three-dimensional accountability system, increase the heavy blow to financial fraud, fraudulent issuance, market manipulation and other illegal acts, and severely punish intermediaries who fail to perform their duties and responsibilities, and will not tolerate them.
Severely punishing violations has always been one of the important tasks of supervision. With the increase in the information disclosure requirements of the comprehensive registration system, the punishment for violations in the capital market chaos this year seems to be greater than in previous years.
According to the statistics of the 21st Century Business Herald reporter, there will be about 100 cases of listed companies being investigated by the China Securities Regulatory Commission in 2022, and as of December 20, there have been more than 130 cases since 2023. This means that the number of investigations of listed companies in 2023 will increase by about 30% compared to 2022.
The number of investigations has increased, and the penalties have increased accordingly. In the past, the 300,000 and 600,000 "small fight" penalties complained about by the market were rarely seen again, and they were replaced by heavy hammer fines of tens of millions or even hundreds of millions.
Manipulation of the securities market, financial fraud, and information disclosure violations are the most common reasons for fines of more than 10 million yuan. Among them, the manipulation of the securities market is the most severe.
For example, according to Senyuan Electric's announcement on December 9, its original controlling shareholder, Senyuan Group, was confiscated by the China Securities Regulatory Commission for manipulating Senyuan Electric shares of 308 million yuan of illegal gains and fined 308 million yuan; This means that due to illegal stock manipulation, Senyuan Group was fined 616 million yuan and lost its controlling stake in Senyuan Electric.
Coincidentally, on December 18, the actual controller of Jintuo shares was confiscated by the CSRC of 165 million yuan of illegal gains and fined 496 million yuan for conspiracy to manipulate the stock price of Jintuo shares, with a total of 661 million yuan of illegal gains and fines. The two executives involved, including the actual controller of Jintuo shares, were sentenced to 5 years of market bans at the same time.
In addition, the chairman of Hengrun Co., Ltd. is currently under criminal detention on suspicion of insider trading, and the chairman and general manager of Stellar Technology are also under investigation for short-term trading.
Compared with the manipulation of the securities market, financial fraud is a more common capital market violation. In just six days from December 3 to December 8, four listed companies were fined about 10 million yuan for continuous financial fraud. Among them, *ST Huichen continued to falsify from 2018 to 2022 and was fined a total of 16 million yuan; *ST Potian was fined 13 million yuan for continuous false records from 2017 to 2021, and the then chairman and general manager were banned from the market for 7 years; *ST Taiantang inflated profits and failed to disclose related party transactions in accordance with regulations, with a total fine of more than 13 million yuan; and Sunsea Intelligent "financial bath" from 2018 to 2021, with a total fine of 9.4 million yuan.
Minor violation: "Hit early and hit a small pain"
It is important to note that the heavier the penalty, the better. In the view of legal professionals, violations of laws and regulations are also divided into three, six, nine and so on, and the punishment gap between different nature of problems can be widened, and the punishment is comparable, so as to better play the role of legal deterrence and maintain a good capital market ecology.
Looking at the recent fines of listed companies, while tens of millions of penalties are frequent, it is more common to have a "red face, sweating" type of light punishment. In the opinion of the interviewed experts, this kind of punishment is aimed at "hitting early and hurting a little", and it is a more rational way to deal with minor violations in a timely manner and give them a chance to correct.
Taking illegal shareholding reduction as an example, the CSRC has issued differentiated fines for different types of shareholding reduction violations.
On the one hand, for the illegal reduction of violations with minor violations, reputation penalties + share repurchase are the mainstay.
For example, on December 14, Xiaosong was ordered by the Guangdong Securities Regulatory Bureau to correct the illegal shareholding reduction incident, and its controlling shareholder Huaxin Chuangli issued a shareholding reduction announcement on April 10 this year, and reduced its holdings on August 25 and September 4. Among them, the reduction on September 4 was an illegal reduction, and the illegal shares involved were less than 1% of the total shares of Xiaosong. The Guangdong Securities Regulatory Bureau asked Huaxin Chuangli to order corrections, and at the same time buy back the shares and hand over the proceeds. On the evening of December 14, Hua Hin Chuangli announced an apology and promised to buy back, and the next day it repurchased and handed over the proceeds to Xiaosong shares, and the incident came to an end.
In the opinion of the interviewed experts, if the amount of illegal reduction of Xiaosong shares is not large and does not involve other illegal factors other than the reduction, it is quite reasonable to ask it to repurchase shares and apologize. Such a punishment means, first of all, that the bamboo basket of the reduction holder is empty, and he has not earned a cent in vain, and he needs to apologize, which is thankless. Secondly, according to the relevant regulations on short-term trading, shareholders who are penalized for illegal shareholding reduction and repurchase shares will not be able to reduce their holdings again in the next six months, and the lock-up period for all holdings will be extended in vain. In addition, for shareholders who value reputation, regulatory fines are implicitly binding on them, and may have side effects on their subsequent financing and business cooperation. "If the penalties are too severe, it will put too much pressure on the holders, and at the same time, it will not be conducive to widening the penalty gap between different violations." ”
On the other hand, for those who have serious violations, especially those involving violations other than those other than the reduction, they will be given significantly heavier administrative penalties.
Typical examples such as my Le Home, on August 27, the new regulations for reducing holdings were released, and I Le Home Furnishing did not meet the requirements for reducing holdings. From September 5th to September 6th, the major shareholders of our home furnishing and their concerted actors committed crimes against the wind, reducing their holdings by 22.44 million shares, accounting for 7.1124% of the total share capital of our home furnishings, and did not stop trading as required when the total reduction ratio reached 5%. In addition to the crime, the proportion of holdings was increased, and the major shareholders of our Le Home Furnishing and their concerted actors were fined nearly 50 million yuan in total.
According to Hu Qinyan, a partner at Beijing Yinghe Law Firm, the CSRC's different degrees of punishment for listed companies for different degrees of violations reflect the principle of proportionality of punishment.
The frequent serious violations and minor violations of listed companies are all undermining the order of the capital market and should be punished accordingly. However, penalties for different levels of non-compliance should vary to reflect fairness and efficiency.
Serious violations, such as fraud, insider trading, market manipulation, etc., should be subject to severe penalties, including fines, bans on participation in capital markets, etc. These behaviors not only harm the interests of investors, but also undermine the fairness and transparency of the market, and strict measures must be taken to maintain the stability and healthy development of the market.
For minor violations, lighter penalties can be taken, such as warnings, criticism and education. Although these acts violated relevant laws and regulations, they did not have a significant impact on the interests of investors and market order, so it is more appropriate to take relatively light penalties.
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