The Supreme People's Court issued a typical case of financial fraud

    Integrity is the most valuable cornerstone of the market. The report of the 20th National Congress of the Party calls for promoting the culture of integrity and improving the long-term mechanism of integrity construction. Financial fraud undermines the entire market rules and the construction of the credit system, and seriously damages the legitimate rights and interests of the people.​ It is intended to regulate the financial audit order according to law, effectively curb financial fraud, continuously increase the punishment of financial fraud and other acts, adhere to the rule of law and the bottom line of integrity, and build an open and transparent market environment based on integrity.

The proper trial of financial fraud cases by the people's court is related to the maintenance of the legitimate rights and interests of various market players and the overall situation of economic and social development. In order to further play the functional role of judicial service guarantee to promote high-quality economic and social development and the leading demonstration value of typical cases, the Supreme People's Court issued five typical cases of financial fraud. This batch of cases mainly has the following characteristics:

First, all aspects of the fight against financial fraud, fully implement the "zero tolerance" requirements. The typical cases selected this time involve listed companies, listed companies, ordinary state-owned companies and private enterprises, and the fraud behavior covers the public transfer of listed companies, major asset restructuring of listed companies, issuing false audit reports to defraud bank loans and other scenarios. The People's Court has dealt criminal and civil blows to many financial fraud subjects such as securities issuers, sponsor brokerages, financial advisers, accounting firms according to their respective faults, and implemented the requirements of the Party Central Committee on "zero tolerance" for financial fraud.

The second is to punish the principal evil and accomplice, and adhere to the principle of "excessive responsibility". The major shareholders and actual controllers of securities issuing companies are the chief villains of financial fraud, and should be severely punished first. At the same time, underwriting and sponsorship agencies, accounting firms, law firms and other securities service institutions are lazy in fulfilling their "gatekeeper" duties, participating in or cooperating with financial fraud, which seriously damages the construction of a multi-level capital market system, damages the rights and interests of small and medium-sized investors, affects market investment confidence and national financial security, and should also be investigated for legal responsibility according to law. In Case 2, the people's Court implemented the principle of "equal liability", reasonably defined the duty of care and scope of responsibility of all parties, and determined that the securities company and accounting firm bear the corresponding proportion of joint and several liability. "Chasing the first evil" and "playing accomplices" simultaneously, accurately cracking down on illegal acts, protecting the legitimate rights and interests of investors, and promoting the healthy development of the industry.

Third, civil administrative criminal means should be equal, forming a three-dimensional accountability system. Financial fraud seriously damages the order of capital market, and should be combated through criminal, administrative and civil multi-dimensional accountability system. The two civil and three criminal cases released this time reflect the coordination of civil liability and criminal attack, the civil and criminal responsibility investigation of the people's court, and the administrative punishment of the administrative organ, jointly build a three-dimensional accountability system to combat financial fraud. In the case of a Xiamen accounting firm and Chen Muliang providing false supporting documents, the defendant unit of a Xiamen accounting firm, in order to obtain illegal benefits, ignored the requirements of industry norms and issued false audit reports, which were used by relevant enterprises to defraud banks of loans, resulting in hundreds of millions of yuan of economic losses in the bank, constituting the crime of providing false supporting documents. Finally, the firm and its directly responsible personnel were sentenced to fines and fixed-term imprisonment respectively. Civil liability focuses on the relief of victims, criminal liability focuses on deterring crimes, civil cases and criminal cases cooperate, can better warn the relevant market entities, create a market environment of law and credibility.

Fourth, actively promote the reform of enterprise criminal compliance, and implement the "grasping the front end and treating the disease". In recent years, the people's courts have actively explored the criminal compliance mechanism of enterprises, actively participated in the compliance rectification initiated by the pre-trial procuratorial organs, gave full play to the guilty plea leniency system, effectively released the governance efficiency of the criminal compliance reform of enterprises with high-quality judicial recommendations, guaranteed the high-quality development of the private economy under the rule of law, and continuously optimized the business environment. In Case 5, the people's Court gives full play to its judicial initiative, explores and improves a more flexible compliance rectification mode, simplifies rectification procedures, reduces costs, stimulates the internal power of compliance rectification of enterprises, and urges the compliance rectification of enterprises involved to be in place. On the basis of compliance rectification, the criminal policy of combining leniency with severity was implemented, and suspended sentences were applied to the defendants.

​ Promote the construction of a strong financial country and serve the overall situation of Chinese-style modernization.

Typical case of financial fraud

Case 1 (Civil)

Investors v. Chang-certain joint-stock company, Dong-certain securities company, Da-certain accounting firm securities false statement liability dispute - Securities service institutions seriously violate the duty of care, release false information disclosure documents are negligent, should be liable for fault compensation

1. Basic Facts

On November 28, 2014, Changmou issued the "Public Transfer Specification" in the national SME share Transfer system. The public transfer of the host securities company for East a securities company, accounting firm for a large accounting firm. From 2014 to 2016, the joint-stock company made up the lending business and transferred the funds to the company actually controlled by the controlling shareholder of the company, forming a total of 189.5 million yuan of funds occupied by related parties, of which 87.5 million yuan was not repaid when due. From 2015 to 2016, without the decision approval of the board of directors and the general meeting of shareholders, the joint stock company provided a total of 16 guarantees for the external loans of the company controlled by the actual controller She and Chen, with a cumulative guarantee amount of 77.3 million yuan. The audit project of the company's 2014 and 2015 annual reports executed by a major accounting firm, there are risk assessment procedures, verification procedures, control testing procedures are not in place, and the content of the draft is inconsistent with the actual situation, Jiangsu Securities Regulatory Bureau decided to take regulatory measures against a major accounting firm.

The investors filed a lawsuit claiming that they suffered losses in the trading of Chang Stock Company due to false information disclosure, and that Dong Securities and Da Accounting firm failed to perform their duties when providing securities services.

Second, the result of the judgment

Jiangsu Provincial Higher People's Court and Nanjing Intermediate People's Court held that Changa joint-stock Company did not disclose related party funds occupation and external guarantees as required, and Donga Securities and Daa accounting firm were negligent in issuing false information disclosure documents, and should bear the corresponding compensation liability. When a major accounting firm engaged in relevant audit projects, in addition to the inadequate implementation of risk assessment procedures, verification procedures and control testing procedures, it directly used the original content of the manuscript template in preparing the manuscript, failed to revise it according to the actual situation of a listed company, and was not fully diligent and responsible when issuing the audit report, which is a fault. In the sample investigation, Dong-A Securities did not pay attention to the business that Chang-X Stock Company may be suspected of connected transactions, did not conduct adequate due diligence in this regard, and did not combine the information obtained in the due diligence process to prudently check and necessary investigation and review the important contents of the professional opinions issued by securities service institutions in the information disclosure documents. The verdict: Chang-certain stock company compensated investors for all losses, Dae-certain accounting firm and Dong-certain Securities bear joint and several liability within the range of 10% and 5%, respectively.

3. Typical significance

Information disclosure is the basis of the healthy and orderly operation of the capital market and the premise for investors to make value judgments and investment decisions. The "cancer" of the capital market such as fraudulent issuance and financial fraud by listed companies seriously damages the legitimate rights and interests of investors and endangers market order and financial security. It is an important link to improve the quality of information disclosure in capital market for securities service institutions to fulfill their duty of "gatekeeper" when providing services. With the continuous development of securities service market, securities service institutions play an increasingly important role in preventing securities fraud and fraud and protecting the legitimate rights and interests of investors. However, in practice, there are serious defects in the risk identification and assessment procedures of some securities service institutions, such as the "formality" of verification and verification, the "tailored" practice report, and the professional opinions formed deviate from the basic standards of practice. In this case, the listed company committed financial fraud and violated the obligation of information disclosure; Securities companies that provide underwriting services for listed companies and accounting firms that issue audit reports are not diligent and responsible, and should bear the corresponding liability for compensation. Considering that underwriting and sponsoring agencies, accounting firms and "insiders" such as the controlling shareholders and actual controllers of the listed companies have different ways to know the real financial situation of the listed companies, and there are differences in the subjective faults of the listed companies' fraud and fraud, the people's court ordered the listed companies to bear full compensation liability for investors' losses. Securities companies and accounting firms bear proportional joint and several liability according to their fault degree, which not only fully reflects the people's Court's implementation of the "zero tolerance" requirement, insisting on the "pursuit of the chief evil" and "accomplice" simultaneously, but also shows that the people's Court adheres to the "excessive responsibility" when determining the responsibility of securities service institutions, accurately pursuing responsibility, and serving the high-quality development of the capital market.

Case 2 (Civil)

Investors against a certain joint-stock company, a securities company, a Rui accounting firm and other securities misrepresentation civil liability dispute case -- Independent financial advisers and accounting firms should be held responsible for not being diligent in the major assets reorganization of listed companies

1. Basic Facts

In 2014, the company implemented major asset restructuring and purchased 100% of the shares of a technology company held by a certain investment company in Shenzhen through the non-public offering of shares. On April 25 and August 8, 2014, a Swiss accounting firm issued audit reports to audit the financial statements of a Chinese technology company and its subsidiaries; On August 8, 2014, the Profit Forecast Audit Report was issued, and the profit forecast made by a certain technology company in China was reviewed. On June 10, 2014, the company invited a securities company to issue an Independent Financial Adviser's Report on the material asset restructuring, promising that it had fulfilled its due diligence obligations in accordance with laws, administrative regulations and the provisions of the China Securities Regulatory Commission, and had reason to believe that the restructuring report complied with relevant provisions and the information disclosed was true, accurate and complete. There are no false records, misleading statements or material omissions. On May 31, 2019, the company issued an announcement on receiving the "Administrative Penalty Decision" from the China Securities Regulatory Commission. The China Securities Regulatory Commission (CSRC) affirmed in the penalty decision: 1. In November 2013, according to the strategic cooperation framework agreement signed with a local government, a certain technology company in China issued a Statement on the Performance forecast of the "Banbantong" project and a Profit Forecast Report. However, in the bidding process of the project, a certain technology company did not actually win the bid, and it was aware that the framework agreement was difficult to continue to perform, but it did not timely prepare and provide the profit forecast Report, resulting in a serious misstatement of the evaluation conclusion and a serious increase in the evaluation value of the assets placed. 2.In 2013, a certain technology company in China recognized the income of the "Smart Stone Guai" project according to the completion percentage method when it did not meet the conditions for revenue recognition, resulting in an inflated operating income of 50 million yuan in 2013 and false records in the audited financial report. The SFC determined that these actions constituted misrepresentation of securities. Investors Li Mou and others sued, requested to order a certain joint stock company, a certain technology company, a securities company, a Rui accounting firm and other joint compensation for its investment difference losses, commission losses, stamp duty losses.

Second, the result of the judgment

The Shanghai Higher People's Court and the Shanghai Financial Court held that the recruitment of a securities company as an independent financial adviser requires prudent due diligence on restructuring activities, full verification of the authenticity, accuracy and completeness of the listed company's declaration documents, and prudent verification should still be carried out if the opinions issued by it adopt the professional opinions of other institutions or personnel. In this case, a securities company did not have sufficient evidence to show that it carefully checked the actual progress of the project involved in the case, and it did not take effective actions to correct it in a timely manner after knowing the real situation of the project. An accounting firm in Switzerland did not provide evidence to prove that it had carried out the necessary audit procedures, and lacked due attention to the actual commencement, construction progress and completion progress of the project, as well as necessary data review. Therefore, although Zhaozhao securities company and Rui accounting firm were not subject to administrative punishment, they were not diligent and responsible in the major asset reorganization, resulting in serious inflated asset pricing and false records in relevant information disclosure. After comprehensive consideration of the nature of its behavior, the degree of fault, and the causative force between it and the investor's loss, it is determined that a securities company in the range of 25% and a certain accounting firm in the range of 15% shall bear joint and several liability for the civil liability of securities misrepresentation of a certain joint-stock company in China.

3. Typical significance

The true, accurate and complete information disclosure is the necessary condition to maintain the effective operation of the securities market. Securities service institutions such as sponsors, underwriters, independent financial advisers, accounting firms, law firms and appraisal agencies, as the gatekeepers of the market, play a key role in maintaining the "fairness, justice, openness" and effective operation of the securities market. Some securities service institutions do not fully perform their duties, which is one of the important reasons for the repeated violation of investors' rights and interests such as false statements. In order to clearly define the responsibility boundary of securities service institutions and urge them to perform their duties effectively, this case makes it clear that in securities trading, whether securities service institutions are diligent and responsible should be determined according to their respective work scope and professional field, and whether they fulfill their verification and verification obligations in accordance with relevant laws, administrative regulations, departmental rules and industry practice norms. And distinguish between ordinary duty of care or special duty of care and specific judgment. For the securities service institution to bear the civil compensation liability for securities misrepresentation, it should consider the nature of its behavior, the degree of fault and the causal force between it and the investor's loss and other factors to determine the scope of compensation it should bear. In this case, the independent financial adviser who has not received administrative punishment shall bear "partial joint and several liability", which reasonably defines the standard of the duty of care and the scope of legal liability of the parties, and is conducive to urging the formation of a good capital market environment of "each fulfilling his duties and each bearing his responsibilities".

Case 3 (Criminal)

Xiamen an accounting firm, Chen Mouliang and other cases of providing false supporting documents - the unit implemented the provision of false supporting documents

1. Basic Facts

The defendant unit Xiamen accounting firm is actually controlled and operated by the defendant Chen Mouliang (not qualified as a certified public accountant), the defendant Xu Mouguo is a nominal managing partner, and the defendant He is a certified public accountant and receives salary. From 2015 to 2017, a certain accounting firm in Xiamen violated laws and regulations, and without auditing the operation, financial data and accounting documents of the audited company by certified public accountants, Chen made the report by himself and signed it on behalf of Xu Mouguo, signed it by a fake certified public accountant, or Xu Mouguo and He Mouguo signed the blank report and Chen Mouguo again

Original link：http://www.csrc.gov.cn/csrc/c100210/c7490330/content.shtml

Source: China Securities Regulatory Commission