By Wang Rui, a lawyer at Beijing King & Wood Mallesons Shanghai Branch, and Zhu Li, assistant manager of Shenzhen Stock Exchange
In February 2023, the China Securities Regulatory Commission (CSRC) issued a comprehensive implementation of the registration-based system for stock issuance, marking the basic finalization of the institutional arrangements for the registration-based system. The change of regulatory logic, the optimization of the conditions for issuance and listing, and the improvement of the quality requirements for information disclosure will directly affect the normative structure of the crime of fraudulent issuance of securities. This article will discuss the impact of the registration-based reform on the determination of the "materiality" criterion of the crime of fraudulent issuance of securities in light of the substantive changes in the registration-based reform.
In the course of the development of the mainland stock market over the past 30 years, whether it is the approval system, the "channel system" under the approval system, or the "sponsorship system" under the approval system, the government's leading color has been relatively strong. The securities regulatory authority uses its administrative power to decide and control the issuance of shares, and instead of investors making value judgments on the issuance applicants. Under the registration system, the role of the regulatory authorities has changed, highlighting the stock issuance system dominated by market mechanisms and centered on information disclosure. The essence of the reform of the registration system is to give the choice to the market, and investors can judge and choose for themselves. This transformation will undoubtedly require true, accurate, complete, and timely information disclosure. Therefore, the crime of fraudulent issuance of securities is a typical administrative crime, and the change in the stock issuance system will have a direct impact on the normative composition of this crime.
The value of the criminal independent evaluation of the "materiality" of the crime of fraudulent issuance
The basis for distinguishing between sin and non-sin
The crime of fraudulent issuance of securities under the Criminal Law requires that only when the concealed facts and fabricated false content reach a significant level, it will be raised to the scope of criminal law evaluation. However, in the criminal justice practice of mainland China, there are few cases of independent analysis or argumentation of the materiality criterion, and for a long time, the criterion of materiality of fraudulent issuance has been confused with the criterion of criminalization, or administrative judgment has been relied upon, resulting in the void of the criterion of criminal materiality. At the level of criminal composition, in the determination of the crime of fraudulent issuance of securities, the materiality criterion of the content of the false statement belongs to the constituent elements of the criminal act in the objective constitution of the crime, which is not the same logical category as the criterion of criminalization, and should be judged separately. From the perspective of the criterion of criminalization, Article 5 (1) and (6) of the "Criteria for Case Filing and Prosecution (II)" stipulate the criteria for criminalizing the amount of funds raised and the losses of investors, and "the amount of illegally raised funds is more than 10 million yuan" and "the cumulative amount of direct economic losses caused to investors is more than 1 million yuan", that is, the standards for filing and prosecuting the crime of fraudulent issuance of securities are met.
For securities issuance, both the amount of funds raised and the investor loss standard can generally be easily met. For example, according to the latest research by PwC, in 2023, all 103 new shares will be issued on the Shanghai Stock Exchange, with a financing amount of 193.7 billion yuan (RMB, the same below), and the Shenzhen Stock Exchange will have 133 new shares issued with a financing amount of 148.1 billion yuan, and the Beijing Stock Exchange will enter a period of rapid development, with a total of 77 new shares listed in 2023, with a financing amount of 14.6 billion yuan. The average IPO raised about 1.139 billion yuan. Therefore, under the trend of low threshold for criminalization of the crime of fraudulent issuance of securities and the trend of "zero tolerance" in securities law enforcement, the criminal determination standard of "materiality" is more valuable for independent judgment, and the difference in whether the false statement of fraudulent issuance is material and the degree of materiality will affect the judgment of the fundamental issue of crime and non-crime.
Balance between financing efficiency and investor protection
The information disclosure system is the key to the registration system, and according to the "efficient market theory", a market is an "efficient market" if the price of securities always "fully reflects" all available information. Under the registration system, the logic of information disclosure has undergone a fundamental shift, from responding to regulation to investor-centric, that is, information that affects investors' value judgments and investment decisions should be disclosed. The change in the disclosure logic has undoubtedly increased the obligation of issuers to disclose information; At the same time, the focus of the regulatory authorities has gradually shifted to regulatory enforcement. Under the registration system, the crackdown on fraudulent acts of applicant issuers will be more detailed and stricter.
However, if the issuer is required to disclose all the information that may affect investors' value choices and investment decisions, it will inevitably increase the cost of processing information and reduce the financing efficiency, which may have a negative impact on the activity of the securities market. Therefore, criminal justice practice needs to find a balance between financing efficiency and investor protection, and the criterion for judging the seriousness of the crime of fraudulent issuance is to distinguish the substantive boundary between administrative violations and criminal offenses. That is, only when the facts concealed by the illegal act or the fabricated false content reach the level of materiality, the crime of fraudulent issuance of securities is constituted and criminal liability is borne. Otherwise, civil and administrative liability can be used to punish issuers and protect investors.
Trends in independent criminal identification
In the past, most securities criminal cases were investigated by the CSRC before the clues were handed over to the public security organs for filing and investigation, and the subsequent judicial authorities generally referred to the written opinions issued by the CSRC in determining the relevant core issues (such as the starting and ending points of the manipulation, the time and end date of the formation of inside information, and the materiality of the fraudulent act). However, criminal offenses and administrative offenses are different in terms of constitutive elements and evidentiary requirements, and in practice, there are increasingly calls for public security organs and judicial organs to make independent judgments on the ascertainment of facts and legal determinations related to securities crime cases.
With the continuous strengthening of the criminal investigation force of securities crimes in mainland China and the construction of the professional team of judicial organs, there are gradually cases in judicial practice where the public security organs directly file and investigate the criminal clues after obtaining criminal clues on their own without being punished by the China Securities Regulatory Commission (or the clues are not from the China Securities Regulatory Commission). The situation in which the public security organs directly file a case for investigation is showing an expanding trend under the registration system. In criminal cases of fraudulent issuance of securities in which the public security organs and judicial organs intervene in advance, it is obvious that the criterion of "materiality" should be returned to independent judgment at the criminal level.
Under the registration system, the regulatory logic has changed, and the regulatory focus is on system construction and regulatory law enforcement. Under such circumstances, the criterion of "materiality" of the crime of fraudulent issuance of securities is more valuable and meaningful for independent judgment, so as to balance financing efficiency and investment security, and strictly distinguish between criminal offenses and administrative violations.
Analysis and construction of the criterion of "materiality".
The "materiality" judgment should be based on influencing the decision-making of "generally rational investors".
Article 160 of the Criminal Law stipulates that the crime of fraudulent issuance of securities includes two acts, one is to conceal material facts, and the other is to fabricate material false content, both of which emphasize "materiality". In the context of the reform of the registration system, the criterion of "materiality" should be defined as "influencing the decision-making of generally rational investors". Under the approval system, the China Securities Regulatory Commission (CSRC) issues initial public offering (IPO) approvals based on the decision of the Issuance Examination Committee, which is essentially an administrative license, and the administrative organs exercise the functions of intervention and control in the securities market.
In this context, the judgment of the "materiality" criterion needs to consider the possibility of the approval of the securities regulatory authority, that is, the importance of the actor's concealment and fabrication of content to the securities regulatory authority to agree to the issuance of securities. However, under the registration system, the administrative control power is limited, and the ex-ante examination is changed to ex-post supervision, and an effective operation mechanism of the securities market is established spontaneously with information as the basic element. In this case, the ultimate purpose of the issuer's fraudulent act is to influence the investment decisions of ordinary rational investors. Article 19 of the new Securities Law of 2019 stipulates that the information necessary for investors to make value decisions should be fully disclosed in the issuance application documents, reflecting whether the information is important by whether it will affect investors' decisions......
Pay ¥5
Article source丨Tsinghua Financial Review, Issue 126, May 2024
This article is edited by Wang Mao
Editor-in-charge丨Ding Kaiyan, Lan Yinfan
Preliminary trial丨Xu Lanying
Final Review丨Zhang Wei
Review of Past Articles -
01
02