news

한어Русский языкEnglishFrançaisIndonesianSanskrit日本語DeutschPortuguêsΕλληνικάespañolItalianoSuomalainenLatina

source | deepblue finance

the first-instance judgment has been made in the case involving the liability dispute between the former "private equity tycoon" xu xiang and the former chairman of wenfeng holdings xu changjiang for suspected manipulation of the securities market.

wenfeng co., ltd., which was ordered to bear joint and several liability for the compensation obligations of xu xiang and xu chang, has issued a relevant announcement, saying that it will appeal to the jiangsu higher people's court.

this case has attracted much attention, and legal professionals have said that there are indeed many issues in this case that are worthy of discussion and attention.

1

two “first cases”

on september 4, wenfeng world chain development co., ltd. (wenfeng co., ltd., 601010.sh) announced that recently, the company received a "civil judgment" delivered by the nanjing intermediate people's court of jiangsu province. the nanjing intermediate people's court made a first-instance judgment on the case of the plaintiffs liu moumou, zhou moumou and other four natural person investors and xu xiang, xu changjiang, and wenfeng co., ltd. for manipulating the securities market. the defendants xu xiang and xu changjiang were required to compensate for a total loss of 1.102 million yuan. wenfeng co., ltd. shall bear joint and several liability for the above-mentioned compensation obligations, and shall have the right to claim compensation from the defendants xu xiang and xu changjiang after actually assuming the liability.

wenfeng co., ltd. stated that it will appeal the case to the jiangsu higher people's court.

it is worth noting that this case is not only the first case in which a listed company bears civil tort liability, but also the first civil claim case in a series of suspected market manipulation by xu xiang, xu changjiang and others. at the same time, some details in the case have also attracted special attention from the public.

zhao bing, partner at shanghai haoxin (beijing) law firm, said: "it is not uncommon for listed companies to be defendants or compensation entities in securities law violations. however, in civil compensation cases involving market manipulation, it is rare for companies to be the compensation entities. nor have we seen any judgments that have characterized listed companies that have not been subject to criminal or administrative penalties as manipulating the securities market and assuming joint and several liability."

this is also the reason why this case has attracted the attention of industry insiders.

the nanjing intermediate people's court heard the case over a period of more than three years in july 2021. in the first-instance judgment, the nanjing intermediate people's court concluded that there were four major controversial issues in the case, including whether xu xiang, xu changjiang, and wenfeng shares had engaged in market manipulation as claimed by investors and whether they should bear corresponding civil liability; whether there was a causal relationship between the losses claimed by investors and the market manipulation involved in the case; how to determine the period of market manipulation involved in the case; and how to calculate investors' losses.

among them, whether wenfeng co., ltd., as a listed company, has engaged in the manipulation of the securities trading market as claimed by investors and whether it should bear the corresponding civil liability has attracted more attention.

2

“publicly listed companies are also victims”

in the first trial, wenfeng co., ltd. argued that the company did not have the subjective intention to manipulate the stock market, nor did it objectively manipulate the stock market, and was not an infringer identified by criminal judgments or administrative penalties. wenfeng co., ltd. said, "as the object of manipulation, the company is also a victim and should not be listed as a defendant."

the nanjing intermediate people's court held that wenfeng co., ltd., under the control and instruction of xu changjiang, released favorable news without the collective decision of the board of directors. the company's internal control system failed, resulting in the release of information that had a significant impact on its stock price at the time required by xu xiang and xu changjiang, and failed to effectively and equally protect the legitimate rights of small and medium-sized investors. wenfeng co., ltd. was at fault for the occurrence of the securities market manipulation involved in the case. therefore, the company should bear compensation liability for the securities market manipulation involved in the case.

however, some legal experts pointed out that the first-instance judgment of the case mentioned that "wenfeng co., ltd., in accordance with the instructions of its then chairman and actual controller xu changjiang, released favorable information such as equity transfer and 'high dividend and bonus' in the securities market in the name of the company at an appropriate time." in fact, as a listed company, it is unable to control when the equity transfer information to be disclosed is formed between shareholders; in addition, the so-called favorable information such as "high dividend and bonus" is reviewed by the listed company, confirmed by the board of directors, and then approved by the shareholders' meeting.

at the same time, the nanjing intermediate people's court also recognized wenfeng shares as a "victim" in the first-instance judgment. the judgment mentioned that xu xiang controlled the account group to continuously trade wenfeng shares, and xu changjiang abused his position as chairman and actual controller to control wenfeng shares to release information. both of them made huge profits. their actions damaged the legitimate rights and interests of wenfeng shares. therefore, xu xiang and xu changjiang should be the ultimate responsible parties for the manipulation of the securities trading market involved in the case. wenfeng shares has the right to seek compensation from xu xiang and xu changjiang after actually assuming the compensation liability to investors.

in this regard, a lawyer said that equity transfer, high dividends and transfers, and the lack of internal control systems do not constitute manipulation of the securities market under the securities law of the people's republic of china (amended in 2014). wenfeng shares released positive news under the control of xu changjiang without the collective decision of the board of directors, which shows that wenfeng shares did not participate in conspiracy to manipulate the securities market; "the determination of civil tort requires the existence of tortious acts, damage facts, subjective fault and causal relationship. the premise of proving fault is that the act is established."

zheng yu, a professor at east china university of political science and law, said that whether wenfeng shares have manipulated the securities trading market should be viewed in the context of market value management. "in the past ten years, under the background of market value management, many listed companies have established market value management systems. if wenfeng shares authorized chairman xu changjiang to cooperate with xu xiang in the process of market value management, there is market value management cooperation, even if the relevant news released is true, it is also a conscious influence on the market price. this behavior may constitute the scope of article 55 of the securities law, that is, manipulating news, and the listed company may also become the subject of manipulation."

however, zheng yu further emphasized that the information in the judgment only included the chairman's agreed behavior in market value management, and no more information was disclosed. if the listed company can prove that it was unaware of the market value management, then the listed company does not constitute information-based manipulation conspiracy.

"the biggest concern in this case is that wenfeng co., ltd., which was not included in the crime of manipulating the securities market (in the previous judgment), needs to bear liability for compensation." lawyer zhao bing said that judging from the information disclosed in the judgment, in the criminal judgment, xu xiang and xu changjiang both constituted the crime of manipulating the securities market, while wenfeng co., ltd. had committed illegal acts related to information disclosure and did not constitute the crime of manipulating the securities market.

lawyer zhao bing said that xu changjiang was the actual controller and chairman of wenfeng shares at the time, and the listed company was passive to xu changjiang. in the process of xu changjiang using information advantages to manipulate the securities market, wenfeng shares must have been the means or tool for using information to manipulate the market. in this behavior, wenfeng shares is more likely to be the victim. zhao bing also believes that the lack of internal control system should not constitute a fault in manipulating the securities market.

"the parent company bears joint and several liability for compensation, but it is the shareholders of the listed company who are actually responsible." wang xiaodong, director of the shanghai branch of beijing hairun tianrui law firm, said that a small number of actual controllers or shareholders who take advantage of the losses caused by the manipulation of listed companies and claim compensation from the listed companies should be considered carefully. "now, whether it is administrative penalties, civil compensation, or criminal liability, from the perspective of compensation, the legal perspective generally pursues the responsibilities of directors, supervisors, and actual controllers. even if the listed company as a legal entity has insufficient internal control, it is also caused by the directors, supervisors, and senior managers."

3

"criminal confiscation and preservation" and "civil compensation priority"

it should be pointed out that the criminal penalty for xu xiang, xu changjiang and others suspected of manipulating the securities market was made in 2017. in the first-instance judgment of the case in which four investors sued xu xiang and xu changjiang for liability dispute over manipulation of the securities market, it was mentioned that xu xiang and xu changjiang were criminally punished for manipulating the securities trading market, but it did not mention the penalties and specific amounts that the two xus had been fined.

the current solvency of xu xiang and xu changjiang is still unclear.

according to public information disclosed by the qingdao intermediate people's court, in january 2017, xu xiang was sentenced to five years and six months in prison for manipulating the securities market; according to the personal weibo of xu xiang's wife ying ying, xu xiang was fined 11 billion yuan, and about 21 billion yuan of family property was sealed, seized and frozen by judicial authorities.

according to reports from multiple media outlets in 2018, on april 27, 2017, the qingdao intermediate people's court sentenced xu changjiang to two years and six months for market manipulation, suspended his sentence for three years, and imposed a fine of 1.2 billion yuan. xu changjiang's illegal gains of 2.5 billion yuan were turned over to the state treasury in accordance with the law. the qingdao intermediate people's court also made it clear in its verdict that it would continue to recover his illegal gains of 907 million yuan. it is understood that the 907 million yuan of illegal gains that were said to be "continued to be recovered" at the time have since been turned over to the state treasury. it is worth mentioning that the two illegal gains involving xu changjiang, totaling 3.407 billion yuan, were directly transferred from the account of jiangsu wenfeng group co., ltd., the controlling shareholder of wenfeng co., ltd.

regarding whether the criminal fines and confiscations of xu xiang and xu changjiang can be used for civil compensation for investors, zhao bing said that first, it is necessary to determine whether all securities and all means have been exhausted to prove that xu xiang and xu changjiang have no compensation ability; secondly, the "regulations on matters concerning the priority use of property of securities violators to bear civil liability for compensation" was issued on july 29, 2022. the premise is that the violator violated the securities law and should bear both civil compensation liability and administrative liability for paying fines and confiscations. after paying the fines and confiscations for administrative liability, if the remaining property is insufficient to bear civil liability, investors whose legitimate rights and interests in civil compensation liability have been infringed can file a lawsuit with the people's court. "its premise is that the person responsible for the violation has violated the administrative behavior in the securities law, which is different from the fines and confiscations in criminal cases. there are currently no relevant regulations in criminal cases."

some legal professionals mentioned the "xian yan case" which was once very popular. according to the disclosure of the insured typical cases officially released by the "china securities quotation investment education base" in october 2023, in october 2022, the shanghai financial court, in the trial of the civil tort case of 13 plaintiff investors suing the defendant xian yan for manipulating the securities market, based on the principle of priority of civil compensation established in the "securities law", made corresponding preservation of the fines and confiscations of the criminal case of xian yan manipulating the securities market, and gave priority to the execution of the compensation liability determined by the civil judgment. the "china securities quotation investment education base" stated in the article that the first instance of the case ruled that xian yan compensate investors for losses of more than 4.7 million yuan. at present, the preservation funds have been executed, realizing the rights relief of small and medium-sized investors to the greatest extent, and stated that "this case successfully implemented the provisions of the "securities law" on the priority of civil compensation, and it is the first securities infringement case in the country to implement the priority of civil compensation liability."

does the "xian yan case" have any reference significance for the current case of four investors suing xu xiang and xu changjiang for liability dispute over manipulation of the securities market? a senior legal professional said that how the criminal fines and confiscations judgment in 2017 can reflect the "priority of civil compensation" in the civil compensation judgment in 2024 is a question worth discussing in the civil tort case of manipulating the securities market. it should be noted that in the criminal fines and confiscations against xu xiang and xu changjiang in 2017, there were no clear victims of the relevant civil disputes. seven years later, in august 2024, the first-instance judgment of the nanjing intermediate people's court identified the victims of the liability dispute case of xu xiang and xu changjiang for manipulating the securities market for the first time. then, how to make corresponding preservation of the criminal fines and confiscations formed previously and give priority to civil compensation? such exploration is very enlightening for the judicial practice of the case of manipulating the securities market. the legal professional also reminded that how to protect the interests of existing small and medium-sized investors of listed companies is also a question that needs to be considered.

lawyer wang xiaodong emphasized that the current judicial interpretation mainly made relevant provisions for civil compensation for infringement caused by false statements of securities, but the supreme court has not yet made further detailed provisions for disputes over compensation for damages for manipulation of the securities and futures markets and insider trading that often occur in the current capital market.