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Laws and Regulations Express ·

1. The China Securities Regulatory Commission has issued the *Measures for the Supervision and Administration of Directors, Supervisors, Senior Executives and Practitioners of Securities and Fund Operating Institutions*.

To implement the revised *Securities Law*, standardize the office-holding and practice acts of directors, supervisors, senior management and practitioners of securities and fund operating institutions, strengthen the principal responsibility of operating institutions, promote the compliant and sound operation of operating institutions, and protect the lawful rights and interests of investors, the China Securities Regulatory Commission (CSRC) issued the *Measures for the Supervision and Administration of Directors, Supervisors, Senior Management and Practitioners of Securities and Fund Operating Institutions* (hereinafter referred to as the "Administration Measures") on February 18, 2022. The Administration Measures shall come into force as of April 1, 2022. The Administration Measures integrate existing rules and regulatory documents on personnel management of operating institutions, are formulated in accordance with upper-level laws and regulations such as the revised *Securities Law* and the *Securities Investment Fund Law* and in light of institutional supervision practices, and comprehensively stipulate the office-holding requirements, practice norms for personnel of securities and fund operating institutions as well as the principal management responsibilities of the institutions. The main contents are as follows: 1. Optimize personnel office-holding management in accordance with the classification principle; 2. Strengthen practice norms and implement the "zero tolerance" requirement; 3. Tighten the principal responsibility of operating institutions and consolidate the foundation for the development of the industry.

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2. The China Securities Regulatory Commission (CSRC) solicits public opinions on the *Guiding Opinions on Improving the Supervision of Listed Companies After Delisting*.

To meet the requirements of the registration system reform and normalized delisting, further improve the supervision of listed companies after delisting, foster a sound market ecosystem featuring "orderly entry and exit, and unimpeded access and withdrawal", and promote the sound and stable development of the capital market, the China Securities Regulatory Commission (CSRC) has drafted the *Guiding Opinions on Improving the Supervision of Listed Companies After Delisting* (hereinafter referred to as the "Guiding Opinions") in accordance with the *Company Law of the People's Republic of China*, *Securities Law of the People's Republic of China* and other relevant provisions, and released the document for public consultation on February 25, 2022. The Guiding Opinions mainly cover the following contents: 1. Strengthening the convergence of delisting procedures. Unclog the exit mechanism of stock exchanges, improve the undertaking arrangements of sponsor securities firms, simplify the right confirmation and registration procedures, optimize the listing process on the delisting board, and facilitate delisted companies to enter the delisting board in a stable and smooth manner. 2. Optimizing the continuous supervision system for delisted companies. Proceeding from the actual conditions of delisted companies, reasonably set requirements on information disclosure and corporate governance, establish a differentiated supervision mechanism, and enhance the precision and adaptability of supervision. 3. Improving the risk prevention mechanism. Strengthen investor suitability management, guide enterprises without sustainable operation capacity to exit the market through market-oriented approaches, and promote risk containment and gradual risk clearing. 4. Perfecting the supervision system for delisted companies. Establish a supervision mechanism with well-defined responsibilities and efficient coordination, strengthen the division of functions, collaboration and overall coordination among all parties, and form effective joint supervision efforts.

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Regulatory Updates ·

1. China Securities Regulatory Commission (CSRC) Releases Briefing on Case Handling in 2021

On February 18, the China Securities Regulatory Commission (CSRC) released the information on its case handling work in 2021 on its official website. In 2021, the CSRC handled a total of 609 cases throughout the year, including 163 major cases involving typical illegal acts such as financial fraud, fund misappropriation, market manipulation in the name of market value management, malicious insider trading, and failure of intermediary institutions to perform due diligence obligations. A total of 177 suspected criminal cases (clues) were transferred to public security organs in accordance with the law, a year-on-year increase of 53%. The CSRC, together with the Ministry of Public Security and the Supreme People's Procuratorate, jointly deployed special law enforcement operations, further strengthening the synergy between securities law enforcement and judicial work.

The China Securities Regulatory Commission (CSRC) stated that on the whole, the number of uncovered cases has decreased for three consecutive years, and the momentum of frequent and high occurrence of illegal activities in China's securities market has been preliminarily curbed. In the meantime, law enforcement priorities are more distinct, with cases involving false statement, insider trading, market manipulation and violations by intermediary institutions accounting for more than 80 percent of the total.

2. A number of securities firms have received administrative penalties, and the securities regulatory authority will strengthen the meticulous management of securities practitioners

Recently, local offices of the China Securities Regulatory Commission (CSRC) have announced 3 regulatory penalty decisions targeting securities firms, details of which are as follows: On February 21, the Jiangxi Office of the CSRC imposed administrative regulatory measures on Jiangxi Branch of Guotai Junan Securities Co., Ltd. and Yi Moumin, an investment advisor of the said branch. The Jiangxi Office of the CSRC determined that Jiangxi Branch of Guotai Junan has the following irregularities: First, it failed to conduct follow-up visits to some investors who signed the Ganjiang-Tongxing investment advisory service agreements and meet the screening criteria for follow-up visits, which constitutes a regulatory violation. Second, Yi Moumin, the investment advisor for the Ganjiang-Tongxing service, made misleading statements to investors via WeChat and WeChat groups in the process of providing securities investment advisory services. The company's compliance management over the securities investment advisory services provided by Yi Moumin is inadequate, which constitutes a regulatory violation. Also on February 21, the Tianjin Office of the CSRC issued a warning letter to Wang Mou, an employee of Tianjin Branch of Zhongtai Securities. The Tianjin Office of the CSRC stated that during his tenure at Tianjin Branch of Zhongtai Securities Co., Ltd., Wang Mou handled securities subscription and trading on behalf of clients, which constitutes a regulatory violation.

On February 22, the Dalian Supervision Bureau of the China Securities Regulatory Commission issued a warning letter to the Dalian Yuguang Street Securities Business Department of Hongxin Securities. The said business department violated regulations as it failed to apply to the securities regulatory authority for renewal of the *License for Operating Securities and Futures Business* in accordance with provisions before the opening of its business premises, which constitutes a regulatory violation. Among the three aforesaid regulatory letters, the violations mentioned in two of them were caused by illegal business operations carried out by employees of branches of securities firms (including branch companies and business departments).

Leading Cases ·

On January 29, the Top 10 Commercial Cases of National Courts for 2021, selected by the Second Civil Tribunal of the Supreme People's Court, were officially released. All the 10 selected commercial cases are cases with significant social influence and landmark significance whose judgments have taken effect, as adjudicated by people's courts at all levels across China in 2021.

Failure of Underwriting Institutions and Intermediary Institutions to Duly Perform Their Duties and Obligations in the Process of Fraudulent Issuance of Publicly Offered Bonds

Shall bear joint and several liability for compensation with the issuer in light of the circumstances.

487 Individual Investors v. Wuyang Construction Group Co., Ltd. and Other Defendants

Case of Dispute over Liability for False Statement in Securities

Basic Facts of the Case

487 bond investors (the Plaintiffs) purchased the outstanding corporate bonds issued by Wuyang Construction Group Co., Ltd. (hereinafter referred to as "Wuyang Construction"). After suffering investment losses caused by Wuyang Construction's illegal and irregular acts including fraudulent issuance and misrepresentation, they filed a lawsuit requesting Wuyang Construction and other defendants to assume corresponding liabilities. Chen Zhangzhang is the chairman of the board of directors and controlling shareholder of Wuyang Construction. Debon Securities Co., Ltd. (hereinafter referred to as "Debon Securities") served as the underwriter and bond trustee of the subject bonds. Daxin Certified Public Accountants (Special General Partnership) (hereinafter referred to as "Daxin Accounting"), Shanghai Allbright Law Office (hereinafter referred to as "Allbright Law Firm"), and Dagong Global Credit Rating Co., Ltd. (hereinafter referred to as "Dagong Global") are the third-party professional institutions engaged for the subject bond issuance.

The Hangzhou Intermediate People's Court of Zhejiang Province, hearing the case as the court of first instance, held that in the corporate bond prospectus, both the underwriter and intermediary institutions confirmed that the prospectus would not contain false records, misleading statements or material omissions arising from the quoted content, and they would bear corresponding legal liabilities for the authenticity, accuracy and completeness of the prospectus. However, upon specific review of the work performed by the underwriter and intermediary institutions, all institutions were found to have failed to perform their duties with due diligence to varying degrees. The court accordingly adjudicated that Chen Zhizhang, Debang Securities and Daxin Accounting shall bear joint and several compensation liability for the principal and interest of the debts owed by Wuyang Construction to the plaintiff; Allbright Law Offices and Dagong International shall bear joint and several compensation liability for the principal and interest of the debts owed by Wuyang Construction within the scope of 5% and 10% respectively. All defendants dissatisfied with the judgment filed appeals. The Higher People's Court of Zhejiang Province rendered a second-instance judgment to dismiss the appeals and affirm the original judgment.

Expert Comments

Li Youxing, Professor and Doctoral Supervisor of Guanghua Law School, Zhejiang University

The vitality of the capital market is driven by information, and authentic, effective and timely information disclosure is the cornerstone of the sound development of the capital market. Driven by interests, a small number of listed companies and issuers of publicly offered bonds have committed illegal acts such as fraudulent issuance and false statements, which have seriously harmed the legitimate rights and interests of the vast number of investors, endangered the order of the capital market, and restricted the effective performance of the functions of the capital market. In recent years, with the advancement of "stringent regulation", the people's courts have continuously enhanced their adjudication capacity for cases involving false statements in the securities market, so as to safeguard the high-quality development of the capital market, protect the rights and interests of small and medium-sized investors, and build a market-oriented and law-based business environment.

Different from the common securities misrepresentation cases in the past, this case has a number of innovative breakthroughs: First, as the first case of fraudulent issuance of publicly offered bonds in China, it accurately applies the relevant provisions of the *Securities Law*, embodies the spirit of the *Minutes of the National Symposium on the Trial of Bond Dispute Cases by People's Courts*, clarifies the criteria for determining tort liability in bond fraudulent issuance, provides clear judicial relief channels for bond investors, and is of pioneering significance in the process of China's market-oriented and law-based reform of the bond market. Second, it analyzes and assesses the liability delimitation between bond underwriters and third-party professional institutions in misrepresentation liability dispute cases, clarifies and emphasizes the legal consequences of "gatekeeper" institutions failing to duly perform their duties, and renders a judgment that underwriters and intermediary institutions shall compensate investors for their losses, thus making them bear the costs of their violations of laws and regulations. Third, it sets the first precedent of ordinary representative litigation after the implementation of the new *Securities Law* in 2020. Relying on the intelligent platform of digital courts, it has built a fast, convenient and efficient relief channel for investors to safeguard their legitimate rights and interests, which has been widely recognized by small and medium-sized investors.

False statement is a chronic malady afflicting the securities market. It not only directly infringes upon the legitimate rights and interests of investors, but also causes severe damage to the open and fair investment environment. As stated in the written judgment of first instance of this case: "Making violators pay the price for their violations and deterring the 'gatekeepers' feigning sleep from continuing to do so is the basic stance of judicial adjudication towards false statement acts in the securities market." From the perspective of judicial adjudication, this case has sounded the horn for "strict regulation" of the capital market.

Compiled based on information from the China Securities Regulatory Commission, the Supreme People's Court and the 21st Century Business Herald