Securities market false statement tort liability damages compensation

Author: Cheng Xiao
Publisher:
Publish Date: 2004-09-01
Features: Liability for Infringement Damages due to False Statements in the Securities Market The wheels of the securities market have been rolling forward in the process of China's economic market-oriented reform. If the establishment of the two stock exchanges in 1990 marks the starting point, China's securities market has a history of 14 years. During this period, the securities market has grown rapidly from nothing to something, from small to large, with its achievements evident in both development speed and scale. One prominent and important issue facing China's securities market today is the protection of investors' rights and interests. This is not only the common aspiration of market participants, including the vast majority of investors, but also a fundamental policy of China's securities market. The "Several Opinions on Promoting the Reform, Opening Up, and Stable Development of the Capital Market" issued by the State Council on February 4, 2004, explicitly stated the need to "effectively protect the legitimate rights and interests of investors, especially those of retail investors." It should be said that attaching importance to the protection of investors' rights and interests is a basic goal of securities market management in countries around the world. For example, as early as 1937, then-SEC Chairman William O. Douglas stated: "We are the guardians of investors." However, this issue is particularly important and urgent in China at present. Why is that?
Due to specific historical reasons, listed companies in China have a split-share structure, where major shareholders often dominate with "one share, one vote." By controlling the boards of directors and shareholders' meetings of listed companies, they engage in various related transactions, repeatedly harming the rights and interests of small and medium-sized investors. Small and medium-sized investors have become vulnerable prey and victims of market lawbreakers and illegal acts. Second, China's accounting systems and standards have numerous loopholes in terms of scientific rigor and operational feasibility. These loopholes in accounting systems are often exploited by some listed companies, potential listed companies, and their employees, inadvertently providing an easy path for false statements. The distortion of accounting information severely misleads investors, affects their investment decisions, and causes them investment losses. Third, corresponding to the market characteristics of "emerging and transitioning," China's securities market intermediaries and their practitioners are relatively backward in terms of professional ethics and integrity standards. In some cases, driven by profit motives, they forget or ignore the requirements of laws, regulations, and ethical standards, failing to fulfill their supervisory and auditing responsibilities as intermediaries. In some cases, they even collude with listed companies and potential listed companies to engage in false statements and deceive investors. Protecting the legitimate rights and interests of investors and combating illegal acts such as false statements are two aspects of the same issue. Therefore, to achieve the fundamental goal of protecting investors' rights and interests, we should establish and improve legal systems to punish and deter securities-related illegal acts.
Currently, China has established a legal, regulatory, and rule system to regulate the behavior of various participants in the securities market, and a three-pronged responsibility system comprising administrative, criminal, and civil measures is taking shape. This has played an important role in maintaining market order, rectifying market behavior, and combating illegal activities. However, a closer analysis reveals that these laws, regulations, and rules place disproportionate emphasis on administrative and criminal responsibilities while fundamentally failing to give sufficient attention to civil liability systems. Not only are there few provisions for civil liability in the laws, but the existing provisions also contain numerous shortcomings. This means that the defects in China's civil liability system are clearly lagging behind the demands of vigorously punishing illegal acts and protecting investors' rights and interests. They cannot fully meet the needs of the long-term healthy and stable development of China's securities market.
In response to this situation, Dr. Cheng Xiao, in this book, conducts a thorough study on the issue of liability for infringement damages due to false statements, which is the most prevalent illegal act in China's market. Based on general principles of civil law and drawing on a large number of cases from both domestic and international contexts, the author explores the issue of civil liability for damages due to false statements in a meaningful way. The work is well-researched, detailed, well-structured, and written in a fluent style. This research outcome holds significant reference value for both China's legal academia, securities regulators, and the judiciary, making it well worth reading.