"Administrative settlement + civil compensation", the four intermediaries in the Amethystum Storage case paid 1.275 billion yuan to pay for the fraudulent issuance

The amount of the "fine" of the intermediary in the Amethystum Storage fraud issuance case was announced, and a total of about 1.275 billion yuan of commitment money was paid, of which the total amount of compensation for investors' losses was more than 1.097 billion yuan and about 177 million yuan was confiscated.

This is the first case in which the party commitment system for administrative law enforcement is applied. In this case, the intermediary structure was severely punished by combining the commitment of the parties to the administrative law enforcement and the advance compensation.

On December 29, 2023, the China Securities Regulatory Commission (CSRC) signed commitment recognition agreements with four intermediaries in the Amethystum Storage case. The four intermediaries promised to pay a total of about 1.275 billion yuan in commitments, of which about 1.086 billion yuan had been compensated to investors through the advance compensation procedure in the early stage, and the four intermediaries should also pay a total of about 189 million yuan in commitments after deducting the part of self-compensation.

Guo Li, a professor at Peking University Law School, said that the new type of punishment measures are a combination of compensation and punishment, which is pioneering and demonstrative. Judging from the results, the actual controller of the "first evil" listed company was severely punished and held accountable in all directions; intermediaries paid a heavy price, forming a demonstration effect; and investors were efficiently compensated through the way of advance compensation. The use of the comprehensive law enforcement method of undertaking the parties to administrative law enforcement has saved social resources and improved the efficiency of law enforcement, and the market environment has been purified, which is conducive to the restoration of market confidence.

Promised to pay 1.275 billion and rectify

In the early stage, the China Securities Regulatory Commission imposed administrative penalties on the fraudulent issuance of amethystum storage and information disclosure violations and regulations, imposed administrative penalties and market bans on relevant responsible personnel, and transferred the suspected criminal offenders to the public security organs in a timely manner in accordance with the law (the procuratorate has approved the arrest), and held the "first evil" accountable in an all-round way.

At the same time, the China Securities Regulatory Commission (CSRC) carried out relevant investigations on the four intermediaries involved in the case, namely China Securities Construction Investment, Grant Thornton Certified Public Accountants (Special General Partnership), Rongcheng Certified Public Accountants (Special General Partnership), and Guangdong Hengyi Law Firm. Four intermediaries submitted applications to the China Securities Regulatory Commission (CSRC) for the application of the party commitment system for administrative law enforcement, which was accepted by the CSRC in accordance with the law and signed a commitment recognition agreement.

The securities and futures administrative law enforcement party commitment system is a new type of law enforcement method, which refers to the administrative law enforcement method in which the CSRC undertakes to correct the suspected illegal acts, compensate the losses of relevant investors, and eliminate damage or adverse effects during the investigation of units or individuals suspected of securities and futures violations.

According to the circumstances and consequences of the suspected illegal acts of the four intermediaries, they may be fined and confiscated in accordance with the law, with a total amount of about 177 million yuan, which shall be paid by the four intermediaries respectively. Among them, China Securities Construction Investment should pay about 114 million yuan, Grant Thornton Certified Public Accountants should pay about 35.23 million yuan, Rongcheng Certified Public Accountants should pay 4.4 million yuan, and Guangdong Hengyi Law Firm should pay 23.52 million yuan. This part of the commitment will be handed over to the state treasury in accordance with regulations.

In addition, according to the calculations of China Securities Investor Protection Fund Co., Ltd. (hereinafter referred to as the "Insurance Fund Company"), a total of 17,471 investors were injured in this case, with a total loss of more than 1.097 billion yuan. At present, the amount actually compensated to qualified investors in the advance compensation is about 1.086 billion yuan.

The remaining amount of about 11.79 million yuan has not been collected by the relevant qualified investors, and this part of the amount still needs to be paid jointly by the four intermediaries. This part of the commitment will be handed over to the insurance fund company to compensate the eligible investors who have not received the compensation in the advance compensation, and if there is any surplus after the compensation, it will be handed over to the state treasury in accordance with the regulations.

Guo Li told the first financial reporter that the commitment money itself has both punishment and compensation functions, and the commitment money paid by the intermediary in this case is mainly calculated by comprehensively considering factors such as possible fines and forfeitures and compensation for investors' losses, and the final amount is much higher than the amount of fines and forfeitures, and the extra commitment money is used to compensate investors for losses, realizing the purpose of "effectively and conveniently compensating investors for losses while accurately hitting the applicant", connecting administrative law enforcement and civil compensation, and the "gatekeeper" responsibility of intermediaries is further compacted.

In addition to the economic cost of about 1.275 billion yuan, the parties involved in the case also need to conduct self-examination and rectification in accordance with the requirements of the China Securities Regulatory Commission. Among them, the relevant responsible personnel are not only subject to heavy fines, withholding and recovering bonuses, dismissal, and not issuing reports within a certain period of time, and other internal disciplinary measures taken by their affiliated institutions, but also the CSRC will take administrative supervision measures according to the circumstances.

Administrative settlement + advance compensation

The Amethystum Storage case is the first case to apply the administrative law enforcement party commitment system since it was implemented on January 1, 2022.

"The party commitment system for administrative law enforcement is of great significance in improving the efficiency of law enforcement, compensating investors for losses in a timely manner, and restoring market order as soon as possible, and is widely applied in mature overseas capital markets. The SFC said.

Guo Li told the first financial reporter that in the amethystum storage case, the intermediary agency applied the party commitment system for administrative law enforcement for the first time, which has three main characteristics: first, the case is the first batch of fraudulent issuance cases on the science and technology innovation board after the implementation of the registration system, the social impact is bad, and the rights and interests of investors are seriously damaged and need to be compensated; second, the financial fraud of the listed company in this case was planned and implemented by a key few organizations such as the actual controller, and it did not have the willingness and ability to compensate investors; third, the intermediary agency in this case effectively solved the civil compensation problem involved in the case by promising to combine advance compensation。

"The party undertaking system is a detailed way to settle administrative law enforcement in China's securities industry. The core of the system is to protect small and medium-sized investors, which is conducive to the stability of the capital market, and at the same time, the pledgee will rectify it on its own, which is conducive to saving law enforcement costs and improving law enforcement efficiency. It's a win-win system. Li Dongfang, a professor at the School of Civil, Commercial and Economic Law of China University of Political Science and Law, told the first financial reporter.

The China Securities Regulatory Commission also said that through the use of the comprehensive law enforcement method of administrative law enforcement party commitment, on the one hand, the relevant law enforcement cases were quickly resolved, the cases were concluded in a timely manner, and the efficiency of law enforcement was improved; on the other hand, the losses of investors were quickly compensated, the relevant civil disputes were resolved in a timely manner at the front end, and the source of litigation was well managed, and the follow-up judicial resources were saved, and the unification of administrative law enforcement and civil compensation, legal effect and social effect was realized.

It is understood that in just 2 months, 16,986 investors received 1.086 billion yuan in compensation, accounting for 97.22% of the total number of losses and 98.93% of the total amount of compensation.

Jia Kang, founding president of the Huaxia Institute of New Supply Economics, said that the handling of the amethystum storage case adopts the method of combining the commitment of the administrative law enforcement parties with the advance compensation, and severely punishes the suspected illegal parties, which can play a role in setting an example and helping to reduce the occurrence of similar cases in the future; Improve market expectations, so that the due functions of the mainland capital market can be better played.

The first financial reporter paid attention to the fact that on the evening of December 29, the official website of the China Securities Regulatory Commission added a special column of "commitment of administrative law enforcement parties", which was listed alongside columns such as "administrative punishment" and "administrative reconsideration", and issued applicable guidelines.

For the next step, the China Securities Regulatory Commission said that it will continue to intensify the crackdown on violations of laws and regulations in the capital market, use a variety of law enforcement methods, including the commitment system of administrative law enforcement parties, to punish counterfeiting, increase investor protection, strengthen the responsibility of intermediaries, and escort the steady and long-term implementation of the registration system.