Today (December 26), the Shanghai Financial Court heard the case of investors v. Zeda Yisheng (Tianjin) Technology Co., Ltd. (hereinafter referred to as Zeda Yisheng Company), a listed company on the Science and Technology Innovation Board, and its actual controllers, executives, intermediaries and other 12 defendants in the securities misrepresentation liability dispute case concluded by mediation. China Securities Small and Medium-sized Investor Service Center Co., Ltd. (hereinafter referred to as "SME Investment Service") received full compensation of more than RMB 280 million on behalf of 7,195 qualified investors.
This case is the first case in China involving a special representative lawsuit involving a listed company on the STAR Market, and the first securities class action settlement case in China.
In April 2023, Zeda Yisheng Company concealed important facts and fabricated material falsehoods in the securities issuance documents announced, and there were false records and major omissions in the disclosed annual report, and the China Securities Regulatory Commission made an administrative penalty decision. On April 28, 12 investors sued Zeda Yisheng Company, its actual controllers, executives, and relevant intermediaries to the Shanghai Financial Court, requesting that Zeda Yisheng Company be ordered to compensate investors for the loss of the difference, commission and stamp duty, and the other defendants bear joint and several liability for compensation. On July 21, SME Investment Service was specially authorized by some securities investors to apply to the Shanghai Financial Court to participate in the litigation as a representative. The Shanghai Financial Court decided to apply the special representative litigation procedure to hear the case. According to the rules of "implicit participation and express withdrawal" in the special representative lawsuit, the final qualified investors in this case were 7,196 (hereinafter referred to as all plaintiff investors), and the total amount of losses was estimated to be more than 280 million yuan.
Considering that the determination of the facts involved in the case is relatively clear, and the defendant's civil liability for compensation is in line with the expectations of the parties, the actual controller, directors, supervisors, and senior executives of the listed company, In order to effectively reduce the cost of protecting investors' rights, protect the rights and interests of investors to the greatest extent, and at the same time give the defendants the opportunity to make up for their own faults, and reduce the negative impact of illegal events on the capital market, especially the STAR Market, the Shanghai Financial Court decided to organize all parties to carry out mediation to promote the substantive resolution of disputes.
The Shanghai Financial Court immediately launched a general advance preservation mechanism for mass disputes, and preserved the property of Zeda Yisheng Company ex officio, laying a solid foundation and financial guarantee for the development of mediation. At the same time, it actively expanded and upgraded the court's comprehensive platform for judicial protection of investors (click to view details), improved the representative litigation system, and ensured that investors could log in in in real time to understand the litigation process and exercise their litigation rights such as withdrawal and objection.
On December 5, after mediation presided over by the Shanghai Financial Court, SME signed a draft mediation agreement with the 12 defendants on behalf of all the plaintiff investors and submitted an application to the Shanghai Financial Court for the preparation of a civil mediation document.
The draft was signed at the scene
The Shanghai Financial Court issued a notice to all plaintiff investors, convened a hearing on objections to the draft mediation agreement on December 12, organized dissenting investors, the plaintiff's special representative, and the defendant to fully demonstrate the objections, and opened the public website of the trial to observe the live broadcast, so as to protect the right to know of the investors in the group lawsuit.
Objection Hearings
After the hearing, the collegial panel decided to draft a civil mediation document after comprehensively considering factors such as the investor's opinions, the legal and factual circumstances involved in the case, and the legality, appropriateness and feasibility of the draft mediation agreement. During this period, 1 investor applied to withdraw from the mediation, and the final number of investors participating in the mediation was 7,195.
According to the mediation agreement, each responsible entity will pay full compensation of more than 280 million yuan according to the compensation amount approved for the loss of the third party. Among them, Zeda Yisheng Company, the actual controller Lin, and the directly responsible person in charge should bear the main liability for compensation, and other directly responsible personnel of Zeda Yisheng Company, the intermediary agency of securities issuance and its directly responsible personnel shall bear the corresponding responsibilities according to the degree of their respective faults, and all parties shall form a payment plan in line with the principle of timely protection of the legitimate rights and interests of investors, one-time substantive resolution of disputes, and minimization of the negative impact on the capital market.
It is reported that in this case, the proportion of investors who actually participated in the mediation was as high as 99.6% of all eligible plaintiff investors, which is highly representative and covers a wide range. Among them, a single investor received a maximum compensation of more than 500 yuan, and an average of 38,900 yuan per person. After the mediation of the case, the compensation will be automatically distributed to the securities fund accounts of the plaintiff investors through the full-cycle compensation distribution mechanism established between the Shanghai Financial Court and the Shanghai Branch of China Securities Depository and Clearing Co., Ltd., so as to ensure the safety, efficiency and convenience of legitimate rights and interests.
"This case is the first attempt at the settlement of securities class actions, in the mediation, the collegial panel adheres to the principle of 'punishing the first evil' and 'substantive dispute resolution', clarifies in the civil mediation document that the listed company and the actual controller bear the main responsibility, and resolutely implements the spirit and requirements of the Party Central Committee and the State Council for 'zero tolerance' for illegal and criminal acts in the capital market; Disputes will be resolved in an end-of-game manner, and efforts will be made to achieve a balance between the protection of the rights and interests of small and medium-sized investors and the effective control of securities market risks. Lin Xiaoni, the presiding judge of the case and vice president of the Shanghai Financial Court, said.
In the next step, the Shanghai Financial Court will continue to thoroughly implement the requirements of the Central Financial Work Conference on better playing the role of the capital market hub and promoting the deepening and practical implementation of the registration-based stock issuance system, continue to optimize the securities group dispute resolution mechanism, effectively reduce the cost of investors' rights protection, further improve the level of rule of law in the capital market, inject confidence into listed companies and investors, and escort the steady and far-reaching reform of the Science and Technology Innovation Board and the registration-based system。
Expert commentary
Luo Peixin, Vice President and Professor of East China University of Political Science and Law
This case is the first case involving a special representative of a listed company on the STAR Market. Through mediation, the Shanghai Financial Court reasonably allocates the responsibilities of all parties, which reflects the main responsibility of listed companies, the "gatekeeper" responsibilities of intermediaries, and the personal responsibilities of actual controllers, and guides market entities to return to their responsibilities. At the same time, it gives full play to the advantages of the system of "implicit participation and express withdrawal" in the litigation of securities special representatives, and resolves group disputes in a centralized and efficient manner, taking into account the interests of investors and the risk resolution of the securities market. Through mediation, more than 7,000 investors were fully compensated, covering a wide range of investors, and the trial of the case was fair, appropriate and balanced, which is of important exemplary significance.
Xing Huiqiang is a professor at the Law School of the Central University of Finance and Economics
"Settlement is better than judgment", and settlement in securities class actions is particularly deserving of strong advocacy. The settlement reflects a win-win outcome, avoiding subsequent appeals and enforcement, and reducing the cost of investor rights protection. Moreover, due to the huge amount of securities class action lawsuits, if the court directly determines that the defendants are jointly and severally liable, it may lead to greater liability than negligence and excessive deterrence. Settlement can avoid the possible impact of a rigid judgment, not only allows investors to obtain a certain amount of compensation, but also avoids the bankruptcy and bankruptcy of the defendant and the exit of the market, which is a better way out of securities class actions. This case is a milestone in the history of securities civil litigation in mainland China.
(Originally titled: "The First Case of China's Securities Class Action Settlement Takes Effect Today")