Civil Compensation for Great Foshan Lighting or Being Responsible

On March 18th, the Guangzhou Intermediate People's Court accepted the case in which the stockholders v. Foshan Lighting falsely stated that they were responsible for damages and civil disputes. According to Wu Lijun, a lawyer from Shanghai Oriental Cambridge Law Firm, “There are more than 100 civil compensation parties that I am acting on now. The maximum personal claim amount is more than RMB 1 million, and the total amount of civil compensation has exceeded RMB 10 million.” March On the 19th, Beijing Yingke Law Firm, Miao Xiaoli, and Xu Feng, lawyers, also publicly published information on "Foshan Lighting's False Representation Lawyers' Joint Issuance of Call for Claims" on its blog and shareholder rights protection online. As a result, Foshan Lighting's civil compensation began to solicit nationwide due to the administrative penalty of the China Securities Regulatory Commission. Lawyers’ rights-defending actions stem from a paper punishment decision of the Securities and Futures Commission. On March 6, Foshan Lighting received the Administrative Penalty Decision No. 1 [2013] issued by the Guangdong Supervision Bureau of the China Securities Regulatory Commission (hereinafter referred to as the “Administrative Punishment Letter”). Foshan Lighting was given administrative penalties for violations of information disclosure rules.

Foshan Lighting's decision on administrative penalty is the first administrative penalty card issued by the China Securities Regulatory Commission in 2013. Although this decision does not address whether Foshan Lighting constitutes a criminal offence. However, according to lawyers, if the stockholders filed a civil compensation lawsuit, Foshan Lighting could be held criminally liable if the amount of losses of shareholders and creditors reached the prosecution standard due to the disclosure of non-disclosure information or non-disclosure of information.

Correcting the announcement once again made mistakes Foshan Lighting once accumulated more cash than the total amount of funds raised, which is a good example of dividends in the stock market. It has now become the target of all investors.

Prior to the administrative sanctions imposed by the CSRC, Foshan Lighting had been subject to administrative supervision measures of the Guangdong Securities Regulatory Authority in 2012 and was ordered to make corrections within a time limit. In view of this, Foshan Lighting has attracted the attention of regulators for a long time.

On July 5, 2012, Foshan Lighting received the "Decision of Administrative Supervision Measures" (2012) No. 9 and No. 10 issued by the Guangdong Regulatory Bureau of the China Securities Regulatory Commission - "About to order Foshan Electric Lighting Co., Ltd. to take corrective measures "Decisions" (hereinafter referred to as "decisions") and "Decisions Regarding Zhong Xincai's Responsibility for Publicly Explaining Measures."

Decision No. 9 stated that the Guangdong Securities Regulatory Bureau has discovered that Foshan Lighting's 2009 annual report, 2010 and 2011 interim report and annual report did not disclose its relationship with related companies and related transactions. This time, the Guangdong Provincial Securities Regulatory Bureau took orders for correction of Foshan Lighting's administrative supervision measures.

On July 12, Foshan Lighting issued the "2011 Annual Report Correction Announcement" (hereinafter referred to as the "correction announcement") and "2009-2010 daily related transaction announcement" (hereinafter referred to as "related transaction description").

The 2011 Corrections Announcement stated that in item (8) of the ninth important report of the 2011 annual report, related transaction items related to daily operations, the amount of transaction before correction was RMB 96.22 million, and the amount of transaction after correction was RMB 101.97 million.

Correcting the announcement For related parties, after the correction, three companies were added: Foshan Slanber Enterprises Co., Ltd. (hereinafter referred to as “Slanber”) and Foshan Schnoch California Electric Co., Ltd. (hereinafter referred to as “Shi”.) "Nuoqi") and (Hong Kong) Qinghai Horizon Rare Elements Technology Development Co., Ltd.

In the statement of related party transactions, the address of the two companies, Spanbo and Schnoch, is located on the right side of the entrance of Foshan Lighting Building. Shinuoqi is located on the 1st axis of No. 66, Qijiang North Road, Chancheng District, Foshan City. (2#) shop, while Slanber is located at No.2, No. 68, Minjiang North Road, Chancheng District. The legal representative of Slumber is Zhong Yongliang, and the legal representative of Schnoch's registration is Zhong Yonghui. Zhong Yongliang and Zhong Yonghui are respectively the eldest son and younger son of Chairman of Foshan Lighting, Zhong Xincai. According to laws and regulations, both Slumper and Schnoch are affiliates of Foshan Lighting.

According to the reporter’s announcement, the annual reports of Foshan Lighting from 2008 to 2011 did not disclose information on the relevance and related transactions of the two companies. It was not announced that it was an affiliate until it was ordered by the Guangdong Securities Regulatory Authority to make corrections.

In the second item on the fourth page of the 2011 Corrections Announcement, the amount of related transactions for purchasing raw materials has also been changed. The total number of purchases of raw materials before the correction totaled: RMB 22,860,744.56, accounting for 1.89% of the current procurement ratio; the total number of previous periods was: RMB 26,786,010.01, accounting for 3.65% of the current procurement ratio. After the correction, the current period amounted to: RMB 23,696,642.43, accounting for 1.89% of the current purchase ratio, and the total number of the previous period was RMB 59,618,518.31, accounting for 3.65% of the current purchase ratio.

In the case of a change in the purchase amount of a related party transaction, the total purchase amount did not change, and the current purchase ratio after correction and after correction did not change. After a simple calculation, the reporter found that the corrected current purchase ratio should be 1.96% and 8.12%.

The reporter consulted all the announcements of Foshan Lighting, and did not find any correction of errors in the “2011 Corrections Announcement”. If it is not a typo, it is a calculation error. A correction notice required by the Securities and Exchange Commission to order a correction is only 7 pages. If the correction data does not exceed 10, there will be such an obvious error. How can we believe in the 2011 annual report that we did not correct?

The first ticket of the China Securities Regulatory Commission in 2013 On November 2, 2012, Foshan Lighting received the Notice of Investigation by the China Securities Regulatory Commission (No. 12081 of the Guangdong Securities Investigation Commission). Foshan Lighting was investigated for alleged violations of information disclosure.

On March 6, 2013, through a four-month investigation, the Guangdong Securities Regulatory Bureau issued a decision on the administrative punishment of Foshan Lighting, numbered [2013]1. This is the first administrative penalty ticket issued by the China Securities Regulatory Commission in 2013.

According to the Securities and Administrative Commission’s administrative punishment statement, Foshan Lighting’s two consecutive years of regular reports and provisional report disclosures were illegal in 2010 and 2011.

In November 2010, Foshan Lighting provided Qinghai Fozhao Lithium Electropositive Material Co., Ltd., a subsidiary of the company, with 40 million yuan of bank loan joint liability guarantee. In the 2010 annual report, no major guarantees were disclosed.

The 15 related companies that were not disclosed in accordance with the law in 2010 were all directly or indirectly controlled by the relatives of Zhong Xincai, or were directors and senior management personnel. They are related parties of Foshan Lighting.

In 2010, 9 related companies including Foshan Lighting, Schnuch, Shanghai Liangqi, Foshan Shanbang, and Nanhai Guangming had daily related related transactions, and the transaction amount totaled 76.46 million yuan.

Among them, the amount of connected transactions related to daily operations between Schnuch was cumulatively up to 39,939,600 yuan, which exceeded the company's 0.5% of the absolute value of the audited net assets of the company in the latest period, and reached the standard for temporary information disclosure, while Foshan Lighting did not convene. The board of directors considered this related transaction and also failed to make a timely announcement.

According to the administrative punishment report, there are other information that has not been disclosed truthfully in 2010, such as joint investment with related parties, capital increase, and acquisition of equity.

In 2011, the amount of related party transactions that Foshan Lighting should disclose regularly or temporarily amounted to RMB 134 million. It also involved up to 16 friends and relatives of Zhong Xincai's relatives and friends.

Even in 2012, the Guangdong Provincial Securities Regulatory Bureau had ordered Foshan Lighting to correct its annual report in 2011, but there were also five related companies that appeared in the administrative punishment. They had never disclosed the five companies before. Relevance and behavior of related transactions.

Foshan Lighting's serious violations of the law, the Securities and Futures Commission in accordance with the "Securities Act" 193, the Foshan Lighting was ordered to give corrections and give a warning, and imposed a fine of 400,000 yuan. The relevant parties, Zhong Xincai, etc. were also fined with unequal amounts of fines, and Zhong Xincai was personally fined 150,000 yuan.

According to Article 6 of the Judicial Interpretation of the Supreme People's Court of the People's Court of 2003 on Several Rules for Hearing Civil Compensation Cases Caused by False Statements in the Securities Market, the investor shall, on the ground that he himself was subjected to a false statement, decide on the basis of the administrative penalty of the relevant agency or If the people’s court's criminal judgment documents and the civil compensation lawsuit brought against the false statement actor comply with Article 108 of the Civil Procedure Law, the people’s court shall accept the case. It is also this administrative penalty ticket that detonated Foshan Lighting’s civil compensation procedure.

The risk of a criminal case under a storm of claims China Securities Law 63 clearly stipulates that information disclosed by issuers and listed companies must be truthful, accurate and complete, and must not contain false records, misleading statements or major omissions. This is the basic requirement for information disclosure of listed companies by Chinese laws. At the same time, the "Measures for the Administration of Information Disclosure of Listed Companies" also regulates the specific requirements for information disclosure of listed companies.

Regarding the listed company's illegal disclosure or non-disclosure of important information, China's laws set up three levels of legal liability: civil liability, administrative liability, and criminal liability.

First, according to the provisions of Article 69 of the Securities Law, the issuer’s prospectus, listed company’s prospectus, methods for raising corporate bonds, financial and accounting reports, listing report documents, annual reports, interim reports, interim reports, and other information disclosures If there are any false records, misleading statements or major omissions that cause investors to suffer losses in securities transactions, the issuer or listed company shall bear the liability for compensation. This is a civil liability that a listed company may bear due to the disclosure of non-compliance or non-disclosure of important information. The basis for civil compensation is the administrative punishment and criminal judgment.

Secondly, according to the provisions of Article 119 of the Securities Act, issuers, listed companies, or other information disclosure obligors fail to disclose information as required, or the information disclosed has false records, misleading statements, or major omissions. , Order to correct, give a warning, and impose a fine of 300,000 yuan up to 600,000 yuan. This is the administrative responsibility that a listed company may bear due to the disclosure of non-compliance or non-disclosure of important information.

Thirdly, according to Article 161 of the Criminal Law, companies and enterprises that are legally obliged to disclose information provide financial reports to shareholders and the general public that are false or conceal important facts, or to other entities that should be disclosed according to law. Where important information is not disclosed in accordance with regulations, and the interests of shareholders or other persons are seriously damaged, or where there are other serious circumstances, the person directly in charge and other persons directly responsible shall be punished with imprisonment or criminal detention of not more than three years, or shall be placed concurrently or in one place. More than RMB 20,000 but less than RMB 200,000. This is a criminal liability that a listed company may bear due to the disclosure of non-compliance or non-disclosure of important information.

The China Securities Regulatory Commission investigated Foshan Lighting in the investigation and found that the total amount of related transactions in 2011 was 134 million yuan, and Foshan Lighting’s net assets exceeded 2.8 billion yuan. According to Article 1 of the "Supplementary Provisions on the Standards for Prosecution of Economic Crimes" issued by the Supreme People's Procuratorate and the Ministry of Public Security in 2008, the amount involved in a connected transaction or the accumulated amount for twelve months in a row accounted for 100% of the net assets. More than 50 percent will be held criminally liable. Foshan Lighting's related transactions did not meet this condition.

According to the above-mentioned supplementary provisions, companies and enterprises that are legally obliged to disclose information shall provide shareholders and the public with financial accounting reports that are false or conceal important facts, or fail to disclose the other important information that should be disclosed according to law, resulting in shareholders and creditors. Or if the amount of direct economic losses of other persons is more than 500,000 yuan, it shall be prosecuted.

In the case of Foshan Lighting, the reporter interviewed Yuan Jun, an attorney of Beijing Zhongzhao Law Firm, saying that “At present, the China Securities Regulatory Commission has imposed administrative penalties on it, and many shareholders have filed civil compensation lawsuits with the Guangzhou Intermediate Court. Next, according to the above-mentioned legal provisions, Foshan Lighting may not exclude the possible criminal liability.If the violation of disclosure or non-disclosure of information caused by shareholders, creditors, the amount of direct economic losses amounted to 500,000 yuan of prosecution standards, then Foshan Lighting may be investigated criminal responsibility."

Recently, two other listed companies that have attracted much attention in the stock market are Green Earth and Wanfushengke. Green Earth did not issue administrative penalties because the Yunnan Securities Regulatory Bureau directly transferred to the judiciary, so civil compensation can only begin after the criminal judgment comes into effect. However, Wan Fusheng Branch is still in the investigative stage of the China Securities Regulatory Commission. It is still unknown whether it is an administrative penalty or it is transferred to the judiciary to wait for a criminal judgment to cause civil compensation.

Judging from the administrative penalties of the China Securities Regulatory Commission, Foshan Lighting's violation of laws and regulations is not enough to transfer justice. At present, the court has accepted the Foshan lighting shareholders claim, once the court heard that the total amount of Foshan lighting compensation exceeds 500,000 yuan, then will be forced to judicial intervention in Foshan Lighting's violation of information disclosure. If the judicial intervention after the civil compensation case is concluded, then Foshan Lighting will start a new era of China's capital market. The investors’ claim to promote criminal investigation will undoubtedly become a sword for listed companies.