New Trends of CSRC Enforcement Against Securites Violations

（This article was written by Liu Siyuan 、Zhao Feng and GaoXiang of Jingtian & Gongcheng）

(This article was first published on The Lawyer column"International: China Briefing", authorised reprint)

Putting enforcement into practice, it is hoped there will be a noticeable crackdown on disclosure violations and higher standards in maintaining due diligence .

In the first half-year of 2018, CSRC launched 307 investigations and issued 159 decisions of administrative penalties, both of which showed CSRC’s determination in cracking down on securities violations. CSRC also developed new enforcement rationale and established updated enforcement standards in its practice. Based on CSRC latest enforcement practice, we summarised new trends of CSRC enforcement with the hope to assist participants in the Chinese securities market to understand latest enforcement practice and to update their internal compliance system accordingly.

▣ Initiating delisting process against listed companies’ alleged disclosure crimes

Two listed companies were put into delisting process in the first half-year of 2018, in which Jiangsu Yabaite became the first company to be delisted in the Small and Medium Enterprise Board for allegedly committing the crime of disclosing or not disclosing important information in violation of applicable laws.The initiation of the delisting process showed CSRC’s determination in cracking down on disclosure violations, especially those involving potential criminal liabilities.

A listed company might be delisted not only for serious disclosure violations, or fraud listing, but also for violation of certain laws.

▣ Strengthening enforcement against manipulation of the securities market by information disclosure

Since 2017, CSRC has been paying great attention to and imposing administrative penalties against manipulation of the securities market by information disclosure. Such manipulation could be found if the wrongdoer unduly affects the substance or timing of information disclosure, such as bringing forward or postponing the timing of disclosure or overstating the positive information, which would further affect the stock price of the listed company.

Specifically, if anyone colludes with the listed companies’ controlling shareholders or actual owners in the aforesaid manipulation acts, such individual or company could also be found of manipulating the securities market by information disclosure.

▣ Court explicitly stated that CSRC should apply higher evidentiary standard in presuming insider trading

Beijing Municipal High People’s Court recently issued its decision in the appellate case of Su Jiahong v CSRC, which concerned CSRC’s decision and review opinion of administrative penalties against Su Jiahong’s insider trading. In the decision, the court a affirmed that CSRC could presume the existence of an insider trading as long as there was evidence proving the wrongdoer contacted individuals processing the insider information and that the wrongdoer unusually bought or sold stocks.

On the other hand, the court also explicitly stated that CSRC should be prudent in applying the principle of presumption and should apply higher evidentiary standard in finding basic facts, based on which an insider trading was presumed to exist.

▣ Paying close attention to the execution of the duty of due diligence by securities intermediaries

Besides listed companies, CSRC also paid growing attention to securities intermediaries’execution of the duty of due diligence and their performance as “gate- keepers of Chinese securities market”.

A securities intermediary could be found of violating the duty of due diligence and be pursued for legal liabilities if it fails to comply with operating rules or industry standards while examining IPO/M&A projects or listed companies’ annual reports.

▣ Smooth connection with criminal proceedings and higher possibilities in transferring cases to PSB

Only as of the first-half year of 2018, CSRC has transferred 24 cases and 40 individuals/companies to PSB to pursue potential criminal liabilities.

CSRC also constantly improves the connection with PSB in transferring cases to criminal proceedings, and expands co-operation with PSB in communicating intelligence, joint investigations, sharing information and analysing cases. This means CSRC steps up its e efforts to fight against serious securities violations, and more cases involving potential criminal liabilities would be transferred to PSB for investigation. Violations of securities laws and regulations would not only lead to administrative penalties but also criminal liabilities.

作者介绍

   刘思远    

合伙人

010-5809 1385

[e-mail]

刘思远律师毕业于清华大学法学院，先后获得法学学士学位、法学硕士学位。

刘思远律师2017年加入北京市竞天公诚律师事务所并成为证券部合伙人。刘律师的主要执业领域为证券合规、证券诉讼。执业期间，曾办理光大证券乌龙指内幕交易、雅百特信息披露违法、恒康医疗大股东操纵市场、方正证券虚假陈述民事赔偿诉讼等六十余件证券类案件，并为中信证券、苏宁易购、毕马威、泰康资产提供证券合规服务。通过刘思远律师的专业服务，多位客户在被中国证监会行政调查后，最终免予行政处罚；多家上市公司在证券虚假陈述民事赔偿诉讼中全面胜诉；多家金融机构建立了更加完善的合规体系。

刘律师的工作语言是中文和英文。

刘思远律师其他文章

   赵枫    

律师

010-5809 1595

[e-mail]

赵枫律师系竞天公诚律师事务所律师，研究生毕业于北京大学，获得法律硕士和JD学位，本科毕业于南开大学，获得管理学学士学位（财务管理专业）。

赵枫律师的执业领域专注于证券合规、政府调查及刑事案件，擅长办理涉及财务、金融背景的案件，并具有丰富的为涉外企业提供法律服务的经验。赵枫律师曾参与雅百特信息披露违法、某国际银行因涉嫌操纵市场被调查、方正证券虚假陈述民事诉讼等多件案件。

赵枫律师的工作语言为中文和英文。

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  高翔   

合伙人

010-5809 1179

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高翔律师2002年毕业于北京大学法学院，获法学学士学位，2004年毕业于伦敦政治经济学院法律系，获法学硕士学位。

高律师于2004年加入竞天公诚，2008年成为竞天公诚合伙人。高律师的主要业务领域为境内外上市、兼并收购和证券合规。

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