The Securities Litigation Review: China


i Sources of law

In the past 20 years of the formation and development of China's securities market, a large number of relevant laws and regulations have been promulgated. The securities market laws and regulations system was initially established with the Securities Law as the core, including administrative laws and regulations, departmental rules and normative documents of the securities market, covering securities, futures, securities investment funds and other fields, and it plays an important role in the regulation and orderly development of the securities market. The Securities Law is the fundamental law of the securities market. It stipulates the illegal acts of securities and their liabilities

ii Regulatory authorities

The regulatory body of China's securities market is China's Securities Regulatory Commission (CSRC), which is responsible for formulating the rules and regulations of the Chinese securities market. Participants in the securities market include issuers, investors and intermediaries (securities companies, securities service agencies, accounting firms, law firms, etc.) and self-regulatory organisations (the stock exchanges, securities industry associations, securities registration and settlement institutions). There are two stock exchanges in China (Shanghai and Shenzhen), which are responsible for providing trading venues and facilities, supervising the compliance and legality of the securities listed on the exchange and the trading behaviours of its members, and ensuring the openness, fairness and justice of the trading market. The administrative supervision institution shall be responsible for the administrative punishment of the main body of the securities market. The courts are responsible for the civil trial of securities disputes and the criminal punishment of securities crimes.

iii Common securities claims

According to the Securities Law of China, there are four kinds of securities frauds in China's securities market: insider trading, market manipulation, customer fraud and misrepresentation. In addition, there are other illegal behaviours, such as issuing securities without authorisation, providing financing and overdraft for stock trading without authorisation, buying and selling shares of the company by listed companies without authorisation, and changing the purpose of funds raised by listed companies without authorisation. Any subject who is engaged in illegal securities acts faces administrative penalties and civil liability, and if the circumstances are serious, will be subject to criminal sanction.

In the new Securities Law, the applicable conditions for the initial public offering of a company have changed significantly, and the original standard of 'having sustained profitability' has been revised to 'having sustained operation ability'. The requirement for financial accounting report is changed from 'no false record' to 'the financial accounting report of the last three years has been issued with unqualified opinion audit report'. In the new securities law, the factors of financial substance judgment are removed from the issuance conditions and adjusted to form elements that further reflect the position that the stock exchanges do not make substantive judgment on the financial reality of the issuer and do not endorse the liability of the issuer. In essence, this strengthens the responsibility of information disclosure obligors of issuers and intermediaries. The new securities law has significantly increased the punishment for the agency failing to fulfil the duty of diligence. If 'the sponsor issues a letter of recommendation with false records, misleading statements or major omissions, or fails to perform other legal duties', the fine standard will be increased from one to five times the original business income to 'one to ten times', while the business income will be confiscated. The new Securities Law also establishes the presumption of fault liability for information disclosure violations. In the event that investors suffer losses in securities trading due to violation of credit and information disclosure rules, in addition to the liability of compensation, the: controlling shareholders, actual controllers, directors, supervisors, senior managers and other directly liable persons of the issuer, as well as the sponsors, underwriting securities companies and their directly liable persons shall bear joint and several liability with the issuer, except that he or she might be able to prove that he or she is not guilty.

Private enforcement

i Forms of action

There are four means of resolving securities disputes:

  1. administrative, which requires the securities regulatory authorities to impose administrative penalties or other sanctions on the responsible units and personnel;
  2. civil mediation, which requires the mediation organisation designated by the securities regulatory authorities to preside over the mediation;
  3. civil litigation, which requires the civil court to judge the responsible personnel to bear the liability for damages; and
  4. reporting to the public security prosecutor to initiate criminal prosecution proceedings and investigate the criminal responsibility of the responsible personnel.

The actual controller, controlling shareholders, directors, supervisors and intermediaries of listed companies need to bear joint and several liabilities, and the chances of being sued will increase in the future. Regarding the principle of liability for civil compensation for misrepresentation and other fraudulent actions of securities companies, accounting firms, law firms and other intermediary organisations, and controlling shareholders, actual controllers, directors, supervisors and sponsors of listed companies, the new Securities Law changes the original 'fault principle' to 'fault presumption principle', which further reduces the burden of proof of investors. In the future it may become normal for investors to sue the controlling shareholders, actual controllers, directors, supervisors and senior management of listed companies and intermediary agencies, which bear joint and several liabilities.

Due to the fact that most courts still strictly apply the provisions of judicial interpretation of misrepresentation in the pre-procedure of civil litigation of securities misrepresentation, cases in which intermediary agencies were adjudged to bear joint and several liability were relatively rare in the past. Previously, only Lixin Accounting was adjudged to bear joint and several liability in the Big Wisdom2 and Geeya Technology3 cases. However, in 2019, courts have successively made judgments on the cases of intermediary agencies as co-defendants.

For example, in the Kunming Machine Tool case, the Yunnan Higher People's court decided that the securities company should bear joint and several liability for the losses of investors. In a further example, in the case of a false securities statement liability dispute heard by Chengdu Intermediate People's Court, the first trial decision of the court involved securities companies and accounting firms respectively bearing joint and several liabilities of 40 per cent and 60 per cent of the compensation obligations of listed companies.

ii Rapid increase in the number of securities litigation cases

According to the provisions on the cause of civil cases issued by the Supreme People's Court, the cause of action of securities civil compensation litigation is mainly securities fraud liability disputes, including securities insider trading liability disputes, manipulation of securities trading market liability disputes, false securities statement liability disputes and customer fraud liability disputes.

As of 25 December 2019, 19,662 securities fraud dispute cases can be retrieved from China's judicial document and litigation website, including 5,734 judgments, 13,918 rulings and 10 mediation letters. In securities fraud disputes, the cases mainly focus on securities misrepresentation liability disputes. From 2001 to 2019, the number of securities misrepresentation liability disputes gradually increased from 2,517 in 2001 to 9,005 in 2019.

iii The record claim amount in a single case and cumulative claim amount in a series of cases

While the number of listed companies involved in litigation and the number of shareholders' claims have reached a new record, the amounts claimed in civil cases of securities misrepresentation have been constantly rising. In single civil cases of securities misrepresentation heard in 2019, the maximum claim amount in a case with natural person investors as the plaintiff was 66 million yuan. As of the end of October and November 2019, the cumulative claim amount of the securities misrepresentation civil litigation cases involving Big Wisdom and Erkang Pharmaceutical has reached 638 million yuan and 535 million yuan respectively.

iv A sharp increase in the number of cases involving litigation between intermediaries and directors, supervisors and senior executives of listed companies

Under the old Securities Law, the responsibilities of directors, supervisors and senior managers of listed companies and intermediaries were not clearly defined. The court usually holds the listed company liable. Most people think that the responsibility of directors, supervisors and senior executives should be borne by the listed company because they vote according to the will of shareholders.

Under the influence of the declining economy, the performance of companies has been sluggish and their compensation ability is declining. However, in many cases, investors no longer regard the listed company as the 'guaranteed bottom' choice for prosecution and claims, but also list the intermediary agencies and other responsible subjects of the board of directors and supervisors of the listed company as joint defendants. Taking the cases involving 88 listed companies in 2019 as an example, accounting firms have been listed as co-defendants in at least 15 series of cases. Securities companies have been listed as co-defendants in at least 13 series of cases. In at least 40 series of cases, directors and supervisors of listed companies have been listed as co-defendants. Individual intermediary agencies have also become joint defendants in a series of cases because they have been punished by the CSRC more than once.

v Judicial practice

Civil litigation cases of securities misrepresentation entered a 'blowout period' in 2019. Pressure on trials in the people's court has increased greatly. In the past, the practice of putting on record, hearing and settling cases of 'one case, one trial' and 'one case, one conclusion' have lagged behind the needs of judicial practice for such cases.

'The Notice on the Acceptance of Civil Tort Cases Caused by False Statements in the Securities Market' issued by the Supreme People's Court on 15 January 2002, stipulates that the people's court shall accept civil compensation cases for false statements in the form of separate or joint litigation, rather than group litigation. Therefore, investor securities civil compensation litigation still adopts the practice of 'separate filing and separate trial', which also leads to the same listed company potentially facing dozens to thousands of securities civil compensation disputes under the same cause after being punished by the administrative body.

For example, after a company's senior executives' financial fraud was investigated by the CSRC, the first batch of investors filed a lawsuit on 8 February 2003, and within the limitation of action period that expired in January 2005, the compensation case involved a total of 7,000 plaintiffs in more than 20 provinces, cities and autonomous regions. On 25 August 2007, the company announced that it had signed 6,591 civil mediation documents and 66 civil ruling documents.

There have been other examples. In 2013, more than 2,500 shareholders filed claims after a company and related personnel in Guangdong were punished by the CSRC for information disclosure violations. In May 2015, a company in Shanghai announced that it was put on file for investigation by CSRC due to suspected information disclosure violations. In July of 2016, the CSRC issued a decision on administrative penalty that determined that the company's behaviour constituted a false statement. As a result, more than 4,000 shareholders participated in claims in batches. As of 30 September 2019, total compensation of 166 million yuan has been awarded. At present, the Shanghai Financial Court and Shanghai High Court are trying follow-up cases in batches. According to the above data and judicial cases, at present, China's securities civil compensation litigation mainly adopts the procedure of 'one case, one case, one trial separately'.

vi Procedure

The Supreme People's Court clearly stipulated in the notice on the acceptance of civil tort cases caused by false statements in the securities market that the filing of civil compensation cases for false statements in securities must be subject to the penalty decision made by the CSRC and its local offices as a pre-processing procedure. The court usually takes administrative punishment as the premise of accepting civil cases, which greatly limits the investors' right of action. In the above notice, the Supreme People's Court also stipulates that the court in the place where the defendant is located shall have jurisdiction over the civil proceedings against the listed companies and securities companies. However, it is very difficult to gather small and medium-sized investors as the principals in securities civil disputes because of their large number and wide regional distribution. Before the implementation of the new Securities Law, there was no class action system in China's civil dispute system, only separate action and joint action. It is more difficult for investors to safeguard their rights by taking a group action. However, with the introduction of the collective action system after the issuance of the new Securities Law, investors' rights protection is expected to improve.

vii Settlements

Settlement can be divided into the following two types: that the investors and the securities issuers reach an agreement on compensation, which mainly depends on the voluntary performance of the parties; or that the administrative body and the judicial body jointly (or the judicial body alone) preside over a reconciliation agreement between the investors and the securities issuers, which has a certain degree of enforcement, and the non-performers will bear the adverse consequences. At present, the industry associations and specialised agencies are mainly engaged in the mediation of securities and futures disputes. Industry associations include national industry associations, such as securities and futures funds and local industry associations, and specialised agencies include national institutions and some local institutions. Currently, there is no clear judicial review standard on settlement agreements and attorneys' fees in China, but the principle of fairness and justice and the principle of parties' voluntariness should be followed as a whole.

viii Damages and remedies

The scope of investor's compensation for losses in the issuing market is the amount of shares bought by the investor and the interest on current deposits in the bank in the same period. The scope of investor's compensation for losses in the trading market is limited to the actual losses, specifically including three components: (1) the loss of investment balance; (2) commission and stamp duty on the loss of investment balance; and (3) the interest loss of the two funds mentioned in the preceding items from the date of purchase to the date of sale of securities or the base date calculated according to the current deposit interest rate of the bank for the same period. Among the above three compensation ranges, the calculation is more complicated: investment difference loss = (average price of purchased securities – average price of sold securities) × number of securities held by investors. This calculation method is applicable to the situation in which investors sell securities on or before the base date. Investment difference loss = (average price of purchased securities – average closing price of each trading day from the disclosure date or correction date to the base date) × number of securities held by investors This calculation method is applicable to the conditions for determining the benchmark date when investors sell or still hold securities after the benchmark date: (1) from the disclosure date or correction date to the date when the cumulative turnover rate of the stocks affected by the misrepresentation reaches 100 per cent of the tradable part, but the bulk trading is not calculated; (2) if the turnover rate cannot be determined to reach 100 per cent before the trial, the disclosure date shall be used, or the 30th trading day after the correction date shall be the base date; (3) if the market has been delisted, the trading day before the delisting date shall be the base date; and (4) if the transaction has been stopped, the trading day before the suspension date shall be the base date; if the transaction is resumed, the base date may be determined in accordance with item (1).

Public enforcement

i Forms of action

Supervisors may impose administrative penalties or other compulsory measures on violators in accordance with administrative laws and regulations, and may also report and accuse those who constitute crimes to public security bodies. After the investigation, the public security body shall submit the case to the prosecutor for public prosecution and investigation of the criminal responsibility of the violator.

The CSRC reached an administrative settlement with nine subjects, including Goldman Sachs Asia and Gao Hua Securities, in April 2019. This was the first successful settlement case in more than four years since the CSRC issued the measures for the implementation of administrative settlement pilot in February 2015 (the measures for implementation), which has achieved a breakthrough and is a milestone in history.

With the approval of the State Council, the CSRC has formulated the measures for implementation and, together with the Ministry of Finance, the interim measures for the administration of administrative settlement funds. Relevant measures have specified the scope and conditions of application of administrative settlement, settlement consultation, signing, implementation and supervision of administrative settlement agreements, determination, management, use and supervision of administrative settlement funds, etc. Accordingly, the CSRC began to pilot the administrative settlement system in the field of securities and futures.

During the period from 8 October 2013 to 3 July 2015, Goldman Sachs Asia proprietary traders traded through the Goldman Sachs brokerage account opened in Gao Hua Securities, and provided business guidance to Gao Hua Securities' proprietary traders. During four trading days in May and July 2015, the two parties engaged in the trading of other relevant stock and index futures contracts. The CSRC filed an investigation into the above behaviours of the applicant in July 2016. After the CSRC and the relevant settlement applicant of Goldman Sachs reach an administrative settlement agreement in April 2019 , the investigation and trial procedures for the relevant behaviours of the applicant were terminated in accordance with the provisions. The administrative settlement applicants involved shall pay 150 million yuan of administrative settlement and take necessary measures to strengthen the internal control management of the relevant companies.

ii Procedure

The salient procedural features of a securities-related enforcement action or criminal prosecution are as follows.

  1. A securities-related enforcement action or criminal prosecution is an activity guaranteed by national coercive force.
  2. Administrative and criminal proceedings shall be conducted by special state bodies.
  3. Administrative and criminal proceedings must be conducted in accordance with legal procedures.
  4. The severity and compulsion of punishment. The administrative penalty will be a high fine. Criminal punishment usually deprives the defendant of personal freedom and property.

There are many differences between regulatory actions and criminal prosecutions and private civil actions.

  1. The main body is different: the agency that makes the decision regarding administrative or criminal penalty is the administrative body or the judicial body. Civil compensation or compensation litigation is carried out among the natural or legal persons with equal civil subjects.
  2. The legal basis is different: the basis of administrative or criminal punishment is administrative and criminal laws and regulations. The basis of civil compensation is civil laws and regulations.
  3. Different procedures. Generally, administrative punishment must go through four steps: summons, interrogation, evidence collection and adjudication. If the administrative body violates the legal procedure in the process of penalty, the opposing party may bring an administrative lawsuit. According to the provisions of the criminal procedure law and other relevant laws, in general, the public security body is responsible for filing and investigating criminal cases, the prosecutor is responsible for examining and prosecuting and initiating public prosecution on behalf of the state, the court is responsible for hearings, and finally the prison service is responsible for executing the punishment. If there is a dispute over civil compensation or compensation, and civil litigation is instigated, the Civil Procedure Law shall apply.
  4. The methods of punishment are different. The forms of administrative punishment include fines, and detention. Criminal punishment consists of two parts: the main punishment and the additional punishment. The main punishments are public surveillance, criminal detention, fixed-term imprisonment, life imprisonment and the death penalty. Additional punishment includes fines, deprivation of political rights and confiscation of property. Civil compensation includes financial compensation, apology, elimination of influence, cessation of infringement, etc.

iii Settlements

In May 2016, the Supreme People's Court and the CSRC jointly issued a notice on the pilot work of multiple resolution mechanisms for securities and futures disputes in some regions of the country (Law [2016] No. 149). The Supreme People's Court and CSRC jointly determine the pilot mediation organisation system. Mediation organisations initiated and actually managed by securities and futures regulatory agencies and industry organisations can become pilot mediation organisations. In the process of cleaning up and handling mass disputes, securities and futures regulatory agencies may entrust pilot intermediation organisations to central conciliation with regard to matters related to investor rights protection. A mediation agreement that meets the legal conditions may serve as the basis for the parties to apply to the basic people's court with jurisdiction for a payment order. If an investor applies for mediation to resolve a dispute, the operating entity of the securities and futures market shall actively cooperate in mediation. For securities and futures market operators who refuse to perform the mediation and reconciliation agreements without good reason, the securities and futures regulatory authorities shall check their relevant behaviours according to the law, investigate and deal with the illegal behaviours in a timely manner, and record them in the credit database of the capital market.

iv Sentencing and liability

The principle of actual loss is followed in the determination of civil litigation compensation. This refers to the securities fraudster being liable for the actual losses suffered by the investors due to the securities fraud. The Supreme People's Court clearly stipulated in Article 30 of the notice on the acceptance of civil tort cases caused by false statements in the securities market:

the scope of civil compensation liability of the person who makes false statements in the securities market shall be limited to the actual losses incurred by the investor due to the false statements. The investor's actual loss includes (I) the loss of the investment balance; (II) the commission and stamp duty of the investment balance.

This is the embodiment of the principle of actual loss in legislation.

The main provisions of the criminal law include the crimes of:

  1. counterfeiting and altering stocks, companies and corporate bonds;
  2. issuing stocks, companies and corporate bonds without authorisation;
  3. insider trading and disclosing insider information;
  4. fabricating and disseminating false information of securities trading;
  5. luring investors to buy and sell securities;
  6. manipulating the price of securities trading;
  7. providing false documents by intermediary organisation personnel;
  8. providing false documents by intermediary organisation personnel; and
  9. material misrepresentation with supporting documents.

Different crimes correspond to different sentencing standards. For example, Article 180 of the criminal law stipulates that:

the persons who know the insider information of securities and futures trading or who illegally obtain the insider information of securities and futures trading shall buy or sell the securities or engage in the activities related to the insider information before the information concerning the issuance of securities, securities and futures trading or other information having a significant impact on the price of securities and futures trading has not been made public. Whoever trades futures or divulges such information, if the circumstances are serious, shall be sentenced to fixed-term imprisonment of not more than five years or criminal detention and shall also, or shall only, be fined not less than one time but not more than five times the illegal income; if the circumstances are especially serious, he shall be sentenced to fixed-term imprisonment of not less than five years but not more than 10 years and shall also be fined not less than one time but not more than five times the illegal income.

Once the crime accusation is established, the judge determines the specific penalty according to the seriousness of the crime and the different sentencing grades stipulated in the criminal law.

Cross-border issues

The 'long-arm jurisdiction' clause has been added to the new Securities Law. If securities issuance and trading activities occurring outside China disrupt the market order within the territory of China and damage the legitimate rights and interests of domestic investors, they shall be dealt with and investigated for legal responsibility in accordance with the relevant provisions of this law. For the first time, the new securities law clarifies the extraterritorial effect of the Securities Law, which is a pioneering institution. However, the new Securities Law does not specify the specific procedure, which requires the judicial and regulatory authorities to work together to create a long-arm jurisdiction system in line with China's national conditions. It may be anticipated that the relevant cases will inevitably be major foreign-related financial cases. The complexity of their legal relationship and the wide range of interests involved will bring new challenges to judicial work.

Year in review

China's top legislature recently passed the revised version of the Securities Law, which took effect on 1 March 2020. This is the second comprehensive amendment to the law since it came into force in 1999. The law was first revised in 2005, and work on the second amendment began in 2013. The amended law will treat the registration system as a cornerstone of a fair market, cancels the issuance examination committee and authorises the State Council, China's Cabinet, to promulgate stipulations on the specific scope of the securities issuance registration system. The amended law will also set the legal basis for China to expand the pilot registration-based system for initial public offerings in the A-share market and better implement the de-listing system in the securities market.4

In particular, to meet the needs of the reform of the securities issuance registration system, the securities class action system was formally introduced in the new Securities Law to protect the interests of small and medium-sized investors. The investor protection institution may, as the litigation representative, file a civil compensation lawsuit for the injured investor in accordance with the litigation principles of express withdrawal and implied participation. In the future, the China Securities Protection Center for small and medium investors has the right to file a civil claim on behalf of more than 50 small and medium-sized investors against a listed company that has committed illegal acts such as misrepresentation, without the need for additional authorisation or registration by the investors, and can register with the court according to the register confirmed by the securities registration and settlement institution. If the investors do not explicitly withdraw, the effective judgment or ruling shall have effect on the registered investors. It is anticipated that once the system is supported by the people's court and finally implemented, the civil litigation of securities infringement in China will undergo fundamental changes, and the person who makes a false statement may face an 'all people's claim'.

Outlook and conclusions

China's new Securities Law includes a registration-based initial public offering (IPO) system and class actions, which will have a profound impact on the development of the securities market. From now on, there might be an increasing trend towards civil litigation of securities misrepresentation after the revision of the law.

i Administrative illegality and securities infringement

According to Article 85 of the minutes of the ninth civil and commercial meeting of the judicial system, 'if a false statement has been subject to administrative punishment by the regulatory authority, it shall be deemed as a major illegal act.' Based on the above provisions, it is anticipated that in the future the number of cases in which the court will finally recognise administrative violations as securities violations will increase. The People's Court will accept the civil claim for the illegal act of securities only if the administrative body punishes it.

However, we understand that the above provisions emphasise the importance of punishable administrative violations. That is, the People's Court should not challenge the determination of the significance of administrative illegal acts in civil trials. However, there are differences between administrative liability and civil liability in terms of constitutive requirements, protection of legal interests and recognition standards. The people's court still has the right to examine and judge whether the administrative illegal act of punishment definitely affects the investors' investment decision-making and securities trading price according to the specific circumstances of the case. Once the new or revised judicial interpretation formally cancels the pretrial procedure of securities litigation, the major issues will become the core dispute focus of such cases again.

ii Case investigation and share price change

Article 84 of the minutes of the ninth civil and commercial trial working conference stipulates:

As long as the trading market has a clear reflection on the information such as the case investigation of the regulatory authorities and the disclosure articles published by the authoritative media, the people's court shall support one party's plea that the market has known the false statement according to law.

According to the above provisions, the determination of the disclosure date of false statements seems to have been greatly simplified. However, whether the provisions conform to the original intention of the judicial interpretation of misrepresentation on the disclosure date and whether they are fair and reasonable is still open to question and debate.

In China's securities market, the investigation of listed companies on file itself constitutes a major negative. No matter whether the investigation ends with formal punishment or with case withdrawal, the securities market will react strongly to the information of 'investigation on file'. In fact, the decline in a stock price after the announcement of filing investigation information is not necessarily due to the fact that the false statement is known by the market, but is often caused by the major bad news of being filed for investigation or other factors besides the false statement. Therefore, it is questionable that the announcement of the case investigation constitutes the disclosure of the false statement simply because the share price drops after the case investigation.

iii The trading causality of securities misrepresentation

For investors who buy shares between the implementation date and the disclosure date, the court no longer simply believes that their trading decisions are all induced by false statements. The court will analyse the specific situation of the case involving false statements and the trading behaviour of investors, and prudently determine whether there is a causal relationship between the investors' investment decisions and false statements.

For example, in the Youjiu Game case,5 the Shanghai Financial Court held that if the information involved does not have a substantial impact on the investors' investment decisions and stock prices, resulting in investors' losses, then there is no causal relationship between the administrative violation and investors' losses. In another example, in a dispute case of liability for misrepresentation of securities heard by the Chongqing Higher People's Court, the court held that the time for the plaintiff to buy shares was mainly after the listed company issued a series of major good news and the stock market became bullish in the second half of 2014, indicating that the investment behaviour of the investors was not affected by the matters of holding shares on behalf of the investors, and the investment loss of the investors and the behaviour involved in the case indicated that there was no causal relationship. In the retrial of Shunhao Shares,6 the Supreme People's Court ruled that the original judgment did not fully consider the causal relationship between the two false statements implemented by Shunhao Shares and the investor's trading decision, meaning that the basic facts were unclear, and the original judgment was revoked and sent back for retrial.

iv Investors should bear their own investment losses caused by their irrational investment behaviour

If investors ignore the risks of the securities market and the real value of listed companies, and only buy stocks based on the illusory concept of speculation or blind expectation of obtaining excess return in a short period of time, this is irrational speculation in itself. There is no reason for listed companies to pay for the failure of this investment behaviour. We note that the above view that investors should bear the loss caused by their irrational investment behaviour has been recognised by more and more courts.

For example, in the Shanghai Rock case,7 the Shanghai Financial Court held that the plaintiff's investment loss was caused by the joint action of Shanghai Rock's misrepresentation and the plaintiff's own irrational investment behaviour, and should be apportioned according to the proportion of causality, and accordingly, it was determined that 50 per cent of the plaintiff's investment loss should be borne by the plaintiff. Further, in a dispute case of liability for misrepresentation of securities heard by the Higher People's Court of Hunan Province, the court held that some investors bought shares during the period of abnormal fluctuation of the stock market, whether for the purpose of investment or short-term speculation, and by trading shares during the period of abnormal fluctuation of the stock market, they faced higher market risk and should bear corresponding investment risk.

Judging from the data on court decisions in securities fraud disputes, securities civil compensation litigation has been on the rise. The minutes of the 9th civil and commercial trial conference to the new Securities Law reflect the thinking of judicial and legislative bodies to promote the group action system of civil compensation. It is expected that in the near future we will see that the domestic courts will substantially implement group actions in this field.


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