What changes have been brought about by the Criminal Law Amendment "Severe Crackdown" on Securities Violations? Expert interpretation is here
classification： Industry news
The Criminal Law Amendment (11) (hereinafter referred to as the Amendment) was reviewed and passed, filling the shortcomings of the system, and the securities law resonated with the criminal law. A shares will usher in the era of "dual law in one".
The amendments significantly increase the penalties for fraudulent issuance, information disclosure falsification and other crimes, and strengthen the criminal responsibility of “key minorities” such as controlling shareholders and actual controllers. In addition, it also clearly sets sponsors as providing false certifications The criminal subject of the crime of document crimes and the crime of major misrepresentation of documents issued shall be investigated for criminal responsibility for this crime.
The "Daily Business News" reporter interviewed a number of economists, secretaries of listed companies, intermediary agencies, and lawyers. They pointed out that the amendments superimposed on the new "Securities Law" will put a heavy emphasis on fraudulent activities in the capital market and greatly deter potential violations. By.
The reporter interviewed a number of interviewees and learned that the amendment involves criminal prosecutions for violations in the capital market. Then this requires a prosecution standard. Which type of information disclosure fraud should be penalized? What kind of behavior is a very serious form of false disclosure?
On December 26, the official website of the China Securities Regulatory Commission also stated that in the next step, it will take the opportunity to implement the Criminal Law Amendment (11) as an opportunity to accelerate the revision and improvement of criminal prosecution standards.
Unlimited personal fines for fraud
On December 26, the Twenty-Fourth Meeting of the 13th National People's Congress passed the Criminal Law Amendment (11), which will be officially implemented on March 1, 2021.
This amendment has triggered a enthusiastic response from the capital market, and several key points have attracted attention.
First, the amount of penalties for violations of laws and regulations has been greatly increased, and personal fines are even unlimited. For example, the personal penalty for fraudulent issuance was changed from 1% to 5% of illegally raised funds to "combined penalty", the 5% upper limit was removed, and the penalty for units was increased from 1% to 5% of illegally raised funds to 20%~ 1 times; the amount of fines for the responsible person was revised from 20,000 to 200,000 yuan to "combined fines" for information disclosure fraud, and the upper limit of 200,000 yuan was cancelled;
The second is that market entities are penalized for fraud, with an upper limit of up to 10 years, and it also covers intermediary agencies such as lawyers, accountants, and sponsors. The amendment raises the upper limit of the sentence for persons responsible for information disclosure and falsification from 3 years to 10 years. In situations where lawyers, accountants, and other intermediary agencies issue false certification documents in securities issuance or major asset trading activities, and the circumstances are particularly serious, a higher sentence is clearly applicable, and the maximum sentence is 10 years in prison.
Again, it is to strengthen the criminal accountability of the "critical minority" of listed companies. The controlling shareholder, actual controller organization, instigation of fraudulent issuance, information disclosure falsification, and the controlling shareholder and actual controller concealing related matters leading to the company's disclosure of false information, etc. are included in the scope of criminal laws and regulations.
Finally, it is to further clarify the criminal responsibility for new market manipulations such as "fraud trading manipulation", "deceitful transaction manipulation", and "capture manipulation".
The "Daily Business News" reporter interviewed a number of economists, secretaries of listed companies, intermediaries, and lawyers. They stated that the amendment is of great significance to maintaining market order, advancing the reform of the registration system, and ensuring the stable and healthy development of the capital market.
In fact, this is the system construction of "top-level design". Following the implementation of the new "Securities Law", the penalty of fraud will correct the low cost of illegal capital market violations in the past. In the eyes of many securities lawyers, the amendments to the criminal law are parallel to the new Securities Law, and A shares will also be escorted by the "dual law in one".
"From the previous situation, the amendment to the Securities Law has become a sharp sword, and this amendment can be said to be a'shangfang sword'." A listed company secretary said that IPO fraud will be effectively curbed. .
Economist Song Qinghui believes that the amendment is a boost to the healthy development of the capital market. It can be seen from past cases that the punishment of the subjects and persons responsible for counterfeiting is not strong enough. Dadi has increased the cost of violations and punishment, which is expected to form a strong deterrent effect on all parties involved in the market, and supervise them to abide by the law and conduct business in compliance with laws and regulations."
“The costs of violations of securities laws and regulations are mainly in three aspects: one is criminal legal liability, the other is administrative legal liability, and the third is civil compensation liability." Lawyer Wang Zhibin from Shanghai Minglun Law Firm stated that before the new "Securities Law" Many amendments have been made in the protection of investor rights, investor litigation system, administrative punishment, etc. The administrative legal liability and civil compensation liability faced by offenders have been greatly increased. Only the relevant provisions of criminal liability have not been updated. This amendment to the Criminal Law makes up for it The last "short board" has been completed, and the legal framework for penalties for securities violations has been completely updated.
This amendment has greatly increased the penalties, strengthened the principle of "penetration", and strengthened the responsibilities of intermediary agencies, which will greatly deter potential offenders.
The amendment will make the letter more rigorous
Song Yixin, a partner of Shanghai Hanlian Law Firm, also stated that the amendment has made great strides in criminal sanctions against securities crimes. Securities are included in the scope of regulation and new conditions for market manipulation are also stipulated. The second is to increase the intensity. From prison terms to fines, the penalties for fraudulent issuance, information disclosure and falsification have been greatly increased. The third is the outstanding target. That is, the strengthening of controlling shareholders. The criminal responsibility of the actual controller, etc. The fourth is the accountability of the intermediary. The criminal consequences of the sponsor’s and other intermediary agencies’ indiligence are suppressed."
The "Daily Business News" reporter found in an interview that the biggest impression of all parties on the amendment is deterrence, and this deterrence will make basic work such as letter disclosure and IPO more rigorous.
A listed company secretary told reporters that the amendments imposed greater penalties on directors, supervisors, major shareholders, actual controllers, and a few key intermediaries, and the deterrence is unprecedented. This will definitely reduce the probability of reorganization and fraud, and intermediaries will be more cautious, "the storytelling routines may not work in the future."
The amendment and the new "Securities Law" will greatly increase the requirements for information disclosure by listed companies, which requires that information disclosure be extremely cautious and timely. The secretary of the board of directors of a listed company in Shaanxi said, "The requirements for information disclosure by listed companies are becoming stricter and stricter. The responsibility for falsifying information disclosure is increasing, and the penalties have been greatly increased."
The reporter noticed that in the past, the low cost of falsification and violation of the letter would bring about the falsification of the responsible party for violations of laws and regulations.
In this regard, a secretary of the board of directors who did not want to be named gave an example to reporters in the conversation. The secretary of board and the certificate agent are mainly responsible for the letter. In many cases, they unilaterally receive information and trends from the chairman of the board, the actual controller, and the controlling shareholder. Once the funds were occupied, the actual controller went directly to the finance department and took the money away. Before the financial department self-inspected, we did not know who did the letter. But because the fine was not high, considering the problem of'rice bowls', we took all the responsibilities ".
But after the amendment came out, the secretary of the board of directors admitted that he would not dare to carry it anymore, which involved the issue of huge fines and criminal responsibility. The above-mentioned secretary of the board of directors from Shaanxi stated that this requires that every link and every process of the letter and disclosure department must “be personally involved in every detail” and cannot be the “talking-out” of the board of directors, controlling shareholders, or actual controllers.
For investment banks, the amendment has brought new requirements to the work of sponsors.
"It can only be said that the pressure of being an intermediary is increasing, and the risk of project management is the first." A leading brokerage sponsor said that this will also increase the workload of the sponsor and make the procedures more compliant, "such as on-site The number and frequency of due diligence and visits will be higher, especially the intensity of visits to important customers and suppliers, and the verification of whether there is a substantial relationship."
It is worth mentioning that many investors and private equity sources told reporters that increasing capital market rectification will also affect investment style. For example, it may cause a group of problem companies to explode, and the value of the stocks of these companies may be worthless.
A senior investor said: "From an investment perspective, we will be more inclined to leading companies in the future. Buying leading companies and buying foundations is a general trend."
Wang Lin, investment director of Tibet Linlang Investment Management Co., Ltd., said that the reduction of false information to a large extent also means that the quality of listed companies' information is improved and the market will become more standardized. To a certain extent, the letter and Phi regulations will brighten the eyes of investors and select more high-quality listed companies. This is also an important step in the high-quality development of listed companies, "to a greater extent, increase the confidence of our investors."
Analysis of past cases: hundreds of millions of fines will be fined now
Lawyer Wang Huaitao of Shanghai Xingu Law Firm analyzed three typical illegal cases in the past to the reporter of "Daily Economic News". If the above cases are placed after the amendment, the illegal consequences will be very serious and the punishment will be greatly increased.
Case 1: Falsification of the first share of "Wanfu Shengke" on the Growth Enterprise Market
The criminal penalty in the Wanfu Shengke case was that the court convicted Wanfu Shengke for the fraudulent issuance of stocks and sentenced him to a fine of 8.5 million yuan; Chairman Gong Yongfu was sentenced to 3 years and 6 months in prison and a fine of 100,000 yuan. ; Several senior executives such as the company’s chief financial officer and related intermediaries have also been punished accordingly.
Attorney Wang Huaitao said: After Wanfushengke’s fraudulent issuance case is changed to the effective implementation of the amendment, it is likely to face a fine ranging from 85 million yuan to 425 million yuan by the court. Chairman Gong Yongfu is likely to face imprisonment of 5 years to 15 years. Below, and face a fine of canceling the 5% limit on illegally raised funds of 425 million yuan.
Case 2: Fraudulent issuance and delisting of the first share of A shares-Xintai Electric
On April 23, 2019, the Intermediate People’s Court of Dandong City issued a first-instance judgment and sentenced the defendant Xintai Electric Company to a fine of RMB 8.32 million for the crime of fraudulent stock issuance; The defendants Wen Mouyi and Liu Mou won a combined punishment for several crimes, and they decided to execute a three-year imprisonment for Wen Mouyi and a fine of RMB 100,000; for Liu Mousheng, they decided to implement a two-year imprisonment and a fine of RMB 80,000. Yuan.
Lawyer Wang Huaitao said: “Under the terms of the amendment, Xintai Electric Company is likely to face fines ranging from 51.4 million yuan to 257 million yuan by the court, and the company’s directly responsible personnel are likely to face the crime of fraudulent stock issuance, illegal disclosure, and non-disclosure of important information. After multiple crimes are convicted, they can be sentenced to a maximum of 20 years in prison, and face a fine of canceling the 5% limit on illegally raised funds of 257 million yuan."
Case 3: Yabaite who falsified overseas project finance
Disposal results: In May and July 2019, the China Securities Regulatory Commission issued administrative punishment decisions to the intermediary agencies Zhonghua Certified Public Accountants, Jinyuan Securities and the Liability Agency. As the financial consultant of the asset restructuring project involved in the case, Jinyuan Securities failed to perform its duties diligently. The continuous supervision opinions and special inspection opinions issued by the case contained false records. The CSRC was "confiscated three fines", confiscated 10 million yuan of business income, and fined 30 million yuan. , The two project leaders were also punished separately.
Yabaite’s actual controller Lu Yong and related parties Li Masong were prosecuted on suspicion of illegal disclosure and non-disclosure of important information.
Attorney Wang Huaitao said, “After the Criminal Law is amended, lawyers, accountants, auditors, appraisers and other intermediary personnel will issue false certification documents in securities issuance or major asset trading activities, and the circumstances will be clearly applicable to a maximum of 10 Years of imprisonment and fines. In the future, not only the illegal costs of fraudulent and fraudulent issuance and letter-disclosure violations by the company and its directly responsible personnel will increase, but the illegal costs of related intermediaries and intermediary personnel will also increase substantially. Intermediaries and intermediaries The possibility of agency personnel subjectively assisting in fraud will also be greatly reduced."
Criminal prosecution standards will be improved
The "Daily Business News" reporter interviewed several interviewees and learned that the amendment involves criminal prosecutions for violations of the capital market. Then this requires a prosecution standard. Which type of information disclosure fraud is punishable? What kind of behavior is a very serious form of false disclosure?
A secretary of the board of directors expressed a doubt to reporters. He usually receives letters of concern due to flaws in his letter, such as the "face change" of the performance of listed companies. Whether these will involve prosecution issues. This can actually be described as a simple analogy. It is illegal for a thief to steal something, but the act of stealing is “not guilty of death” unless the stealing also stabbed someone.
The reporter noticed that in fact, there has always been a criminal prosecution standard for falsifying information disclosure. The circumstances involved include causing shareholders, creditors or others to accumulate direct economic losses of more than 500,000 yuan, and inflated or inflated assets. The total amount of assets disclosed in the current period is more than 30%, the inflated or inflated profit reaches more than 30% of the total profit disclosed in the current period, and the major litigation, arbitration, guarantee, related party transaction or other major matters not disclosed in accordance with the regulations The amount involved or the accumulated amount for twelve consecutive months accounted for more than 50% of net assets, provided false financial accounting reports or concealed important facts on many occasions, or failed to comply with regulations on other important information that should be disclosed in accordance with the law on many occasions Disclosure etc.
In a general summary, it can be found that criminal prosecutions are mainly based on the three major acts of financial fraud, false information disclosure, and non-compliant disclosure of important information. This also roughly includes information disclosure fraud. A secretary of the board of directors said that since the amendment has come out, the criminal prosecution standards will follow.
On December 26, the official website of the China Securities Regulatory Commission stated that in the next step, the China Securities Regulatory Commission will take the opportunity to implement the Criminal Law Amendment (11) as an opportunity to accelerate the revision and improvement of criminal prosecution standards.
“The main ways of falsifying information disclosure are misleading statements, false records and major omissions.” A secretary of the board of directors from Shaanxi stated that usually financial falsification is in false records, and non-financial falsification mainly focuses on misleading statements and major omissions. Omission. According to his analysis, financial fraud is based on the amount of fraud, which is a better definition. Non-financial fraud may be based on the performance of the secondary market, the amount of loss caused to investors, etc.
Song Yixin also made a suggestion that the fine can be compensated to the victim, or be used as a priority for civil compensation. He said that the best way is to establish an investor loss compensation fund for confiscated funds/administrative fines/criminal penalties, and eventually return these funds to the market and the victims through financial transfer payments. At the same time, it should also regularly publish information on the enforcement of confiscated funds/administrative fines/criminal fines. “As for the operation of this fund, consider the Securities Market Investment Protection Fund. Of."