Author: Lawyer Han Shuaihanshuai_2411, Beijing Yunting Law FirmManagementPartner,Director of the Criminal Committee, Deputy Secretary-General of the Criminal Committee of the Chaoyang District Lawyers Association, External Tutor of Beijing University of Technology, formerCapital prosecutor, head of criminal risk control business of Fintech Group
Zhu Yibo, Dang XinyuanLawyer of Beijing Yunting Law Firm.
Recently, there have been frequent hot spots in the capital market. On January 5, 2024, the official website of the China Securities Regulatory Commission published the first administrative penalty decision of this year, and Rui accounting firm was fined 11886792 yuan for false records in the audit of Kang's new annual financial statements. On February 9, the China Securities Regulatory Commission imposed administrative penalties on the illegal acts of fraudulent issuance in the process of applying for the initial listing of Shanghai Simouxin Technology Co., Ltd. on the Science and Technology Innovation Board. Si Mouxin and related responsible persons were fined a total of 16.5 million yuan. Recently, the China Securities Regulatory Commission has also intensified its crackdown on violations of laws and regulations such as buying and selling by industry practitioners, imposed administrative penalties on 63 people, fined a total of 81.73 million yuan, imposed a lifetime market ban on 1 person, and transferred 1 person suspected of insider trading to the judicial authorities for processing.
On February 4, 2024, Zhang Xiaojin, director of the Fourth Procuratorate of the Supreme People's Procuratorate, said in an interview that it is necessary to strengthen the connection between executions and strictly punish the first illegal and criminal legal network, and the procuratorial organs should strictly and fully pursue financial fraud, embezzlement of assets of listed companies, insider trading, market manipulation, "rat warehouse" and other criminal cases in accordance with the law. According to **, from January to November 2023, procuratorates across the country prosecuted 319 people in 117 cases, a year-on-year increase. 7%。
1. At the beginning of the new year, the capital market ushered in a new round of strong supervision
In response to the illegal chaos in the market, the regulators have also shown a strict attitude of cracking down. On January 24, 2024, Wang Jianjun, vice chairman of the China Securities Regulatory Commission, mentioned in an interview that it is necessary to further improve the anti-counterfeiting system and mechanism of the capital market, maintain a high-pressure situation of "zero tolerance", and resolutely crack down on illegal acts that seriously damage the interests of investors such as fraudulent issuancebankrupt and imprisoned”。On February 4, the China Securities Regulatory Commission issued a document "The China Securities Regulatory Commission Strictly Cracks Down on Fraudulent Issuance, Financial Fraud and Other Information Disclosure Violations in accordance with the Law".Once again, it is emphasized that counterfeiters should "go bankrupt and sit in prison".
On February 18, the China Securities Regulatory Commission held a series of symposiums to listen to the opinions and suggestions of representatives of all parties, the new Secretary of the Party Committee of the Securities Regulatory Commission, Chairman Wu Qing presided over the meeting, the participants said that the recent China Securities Regulatory Commission seriously investigated and dealt with a number of financial fraud, insider trading cases, played a good warning and deterrent effect, it is recommended to further increase the punishment of all kinds of illegal and criminal acts, form more cases with a declaration effect, and effectively protect the legitimate rights and interests of investors, especially small and medium-sized investors, and maintain an open, fair and just market order. The responsible comrade of the China Securities Regulatory Commission said that the China Securities Regulatory Commission is conscientiously implementing a series of important deployments on the capital market, and further promoting the work of strengthening supervision, preventing risks and promoting development.
In addition, according to ** report, the regulator will take stricter regulatory measures, listed companies with obvious abnormal financial data will be checked for 10 years of financial data, companies that have withdrawn listing materials will still be strictly reviewed, and illegal acts such as fraudulent issuance will be severely punished. For key areas such as fraudulent issuance, systematic fraud and cooperative fraud, and financial "bathing", the China Securities Regulatory Commission will strengthen cross-departmental joint prevention and law enforcement, and better give full play to the advantages of the Supreme People's Procuratorate's procuratorial office in the China Securities Regulatory Commission and the Ministry of Public Security's ** Criminal Investigation Bureau, so as to improve the efficiency of administrative and criminal convergence. It is foreseeable that in the future, practitioners in the industry will face higher administrative and criminal risks.
IIipoWhich links and entities need to pay attention to criminal risks?
Judging from the statements of various departments, in the future, the regulators will carry out a "full-coverage crackdown" on illegal acts in the market, and the scope of the crackdown covers the whole process and the whole subject of the issuance.
From the perspective of the process, whether it is before or after listing, relevant entities may face administrative and criminal risks。It is worth noting that the CSRC has repeatedly reiterated the concept of "declaration is responsibility" in recent statements, and even if the reporting entity voluntarily withdraws the listing application, as long as there is serious financial fraud, it may be severely punished. After listing, listed companies are still required to maintain the truthfulness, accuracy and completeness of information disclosure, and will be held administratively or even criminally liable for financial fraud and other illegal acts.
From the perspective of entities, entities participating in the issuance of ** may face administrative and criminal risks. The first type of entities are listed companies and related staff, mainly including the reporting enterprise itself, as well as the senior management personnel of the enterprise, such as the chairman, general manager, chief financial officer, and secretary of the board of directors, from the perspective of practical cases, the actual controller may also be held legally responsible; The second type of entity is intermediary agencies and related staff, mainly including the relevant staff of ** companies, accounting firms and law firms that underwrite and sponsor, and the public cases show that in recent years, the staff of intermediary agencies who have been held legally responsible have gradually increased; The third type of entity is the relevant staff of the regulatory agency, such as staff of the SFC and relevant departments.
3. IPO enterprises "break through with illness", and six types of criminal risks need to be paid attention to
(1) Illegal fundraising crimes
Enterprises planning to be listed raise funds from the public in order to raise funds or to whitewash the data in their financial statements to meet the listing requirements, they need to pay attention to the criminal legal risks of illegal fundraising crimes。According to Article 1 of the Interpretation of the Supreme People's Court on Several Issues Concerning the Specific Application of Law in the Trial of Criminal Cases of Illegal Fundraising, if the act of raising funds meets the four characteristics of "illegality", "openness", "inducement" and "sociality" at the same time, it may be suspected of the crime of illegally absorbing deposits from the public.
If the company to be listed commits fraudulent acts such as fictitious use of funds, investment projects, concealment of the fact that the capital chain is broken, and is unable to repay debts in the process of raising funds from the public, and there are circumstances that may be found to be "with the purpose of illegal possession", such as using the raised funds not mainly for production and business activities, but for high-risk speculation, borrowing new money to repay the old, etc., or continuing to absorb public deposits after the capital chain is broken, it is suspected of fundraising fraud.
According to articles 176 and 192 of the Criminal Law, the subject of the crime of illegally absorbing public deposits and the crime of fund-raising fraud is a general subject, and both the unit and the natural person meet the elements of the subject.
In practice, there have been cases in which companies to be listed, actual controllers, shareholders, directors, supervisors and senior executives have been investigated for criminal liability on suspicion of the above-mentioned crimes. For example, Hunan Hong Yang Power New Materials Co., Ltd. Chairman Zhou Mouyang, director Zhang Moujin in the company's actual production and operation has been loss, do not meet the conditions for public offering and listing transactions, in order to expand the company's financial statement data, so that the company's public offering and listing and trading purposes, to the unspecified public to illegally raise funds for procurement or sales business activities without substance (no physical delivery, only monetary funds delivery of procurement or sales business activities), and in the process of illegal fund-raising using fraudulent methods, The amount of illegal fundraising was as high as more than 2.8 billion yuan, and the court was finally convicted of fundraising fraud, and Zhou Mouyang was sentenced to life imprisonment. In addition, the company's directors, deputy general manager of sales and chief financial officer were also found guilty of illegally absorbing deposits from the public for participating in illegal fundraising.
(2) The crime of fraudulent issuance
Recently, the China Securities Regulatory Commission (CSRC) imposed administrative penalties on the fraudulent issuance of Shanghai Si Mouxin Technology Co., Ltd., formerly known as Shanghai Guowei Si Mouxin Technology Co., Ltd., in the process of applying for the initial listing of the Science and Technology Innovation Board, which is the first case of fraudulent issuance investigated by the CSRC since the implementation of the new "** Law", after the issuer submitted the application materials and was not registered. According to the administrative penalty decision of the China Securities Regulatory Commission, Si Mouxin fabricated material false content in the "prospectus" announced by Si Mouxin, and the total inflated profits in 2020 totaled 1246170,000 yuan, accounting for 118 of the total profit of the year48%。As far as this circumstance is concerned, the standard for filing a case for the crime of fraudulent issuance has been met, and whether the case will be transferred for criminal liability needs to be further followed.
Article 160 of China's Criminal Law stipulates the crime of fraudulent issuance. The crime of fraudulent issuance is objectively manifested as: concealing important facts or fabricating material falsehoods in the prospectus, stock subscriptions, company and enterprise bond fundraising measures and other issuance documents, and issuing ** or corporate or enterprise bonds, depositary receipts or other acts determined in accordance with law.
Among them, "fabricating material false content" refers to the content recorded in the offering documents that is inconsistent with objective facts, for example, the issuer fabricates or deliberately exaggerates the company's production and operation profits and the company's net assets; False plans for the use of the raised funds, false business and production projects, etc. "Concealment of material facts" refers to the failure to disclose the contents of the offering documents that should be disclosed, such as deliberate concealment or omission of the company's debts and the company's ongoing major litigation matters.
In practice, the falsification of financial data in the issuance documents of a company to be listed is the most common fraudulent issuance**。In the case of fraudulent issuance of biotechnology shares in Yunnan Green, the company involved in the case and the chairman of the board of directors He Moukui and other defendants carried out fraudulent acts such as falsifying capital flows, fictitious transaction business, inflating assets, and inflating income by establishing affiliated companies, and listed the above false content in the prospectus, which was finally found by the court to constitute the crime of fraudulent issuance.
What needs to be paid attention to is that the "Criminal Law Amendment (11)" has made drastic revisions to the crime of fraudulent issuance, and the changes are mainly reflected in two aspects: First, the statutory penalty for this crime has been increased, and a stepped statutory penalty has been set up, and for "where the amount is particularly huge, the consequences are particularly serious, or there are other particularly serious circumstances", "more than five years imprisonment" is added, that is, the maximum sentence for committing this crime is 15 years imprisonment. In addition, for crimes committed by natural persons, the upper limit of fines has been abolished and adjusted to unlimited fines. Second, in terms of the criminal subject of this crime, the "controlling shareholder and actual controller" is added as the criminal subject of this crime, and the accomplice acts organized and instructed by the "key minority" are "criminalized", so as to consolidate the criminal responsibility of the personnel behind the fraudulent issuance.
Zi Mou, the first delisted company on the Science and Technology Innovation Board, recently announced that after the company learned from the Meizhou Municipal Public Security Bureau, according to relevant regulations, the actual controller Zheng and the actual controller acted in concert Luo Mouwei were suspected of fraudulent issuance and were taken compulsory measures. According to another announcement, the two have now been arrested by the Meizhou Municipal Procuratorate. Currently,The subject of the crime of fraudulent issuance includes not only the issuer and relevant responsible persons who have the right to issue **, bonds, depositary receipts or other laws and regulations, but also the controlling shareholder, actual controller and relevant responsible personnel of the issuer. In addition, intermediaries such as securities firms, clubs, and upstream and downstream enterprises that conspire with the above-mentioned actors to commit fraud may also be listed as accomplices, constituting this crime
(3) The crime of providing false supporting documents and the crime of issuing supporting documents that are materially untrue
Article 229 of the Penal Code deals with:Accounting, auditing, legal services, sponsors and other intermediary organization personnelIt provides for the crime of "providing false supporting documents" and "the crime of issuing material misrepresentation of supporting documents". As the "gatekeeper" of the capital market, if the personnel of the above-mentioned intermediary organizations fail to perform their duties, but "break through the customs with illness" and "open the back door" for the IPO enterprise, provide false supporting documents related to the issuance, or are seriously irresponsible, and the supporting documents issued are materially untrue, and meet the corresponding circumstances set by articles 73 and 74 of the Supreme People's Procuratorate and the Ministry of Public Security's "Provisions on the Standards for Filing and Prosecution of Criminal Cases under the Jurisdiction of Public Security Organs (II)", they will be investigated for criminal responsibility.
For example, in the case of fraudulent issuance of bonds by Zhongmoutong (Fujian) Machinery Manufacturing, Zhongmoutong Company decided to issue private placement bonds in order to solve the company's financial difficulties, and the company's chairman, actual controller, legal representative, and chief financial officer conspired to falsely increase the company's financial data by forging documents, fictitious income, and issuing false shareholders' meeting resolutions. The relevant person in charge of the hired Li Mouda accounting firm directly adjusted the off-the-books income into operating income in the absence of the original materials such as relevant contracts and warehousing receipts, and directly converted the shareholders' donations into capital reserves without verifying the content of the shareholders' meeting resolution and the issuer without providing relevant materials, resulting in serious inaccuracies in the first draft of the audit report. The company was approved to issue private placement bonds for small and medium-sized enterprises through the filing of the ** exchange by virtue of the audit report with material inaccuracies, and was unable to repay the principal and part of the interest of the bonds after maturity and was bankrupt and reorganized, resulting in investors 1$500 million loss. The Shanghai No. 1 Intermediate People's Court sentenced Zhong Moutong Company, Lu Moumou and others to the crime of fraudulent issuance of bonds, and sentenced the relevant personnel of Li Mouda Certified Public Accountants to commit the crime of issuing material misrepresentation of supporting documents.
(4) The crime of disclosing or not disclosing important information in violation of regulations
According to statistics, as of December 31, 2023, a total of 1,366 listed companies have been punished for information disclosure violations in the whole year of 2023. The China Securities Regulatory Commission recently issued the "Strict Crackdown on Fraudulent Issuance, Financial Fraud and Other Information Disclosure Violations in accordance with the Law", the article pointed out that the China Securities Regulatory Commission has handled a total of 397 cases of illegal information disclosure of listed companies in the past three years, an increase of nearly 20% year-on-year, and made 523 administrative penalties, involving 1,932 relevant responsible persons, 168 people were banned from entering the market, and 116 suspected criminal cases were transferred to the public security organs, resolutely eliminating the "black sheep" and accelerating the promotion of "survival of the fittest". In addition, on the 21st of this month, the Supreme People's Procuratorate issued the "Typical Cases of Procuratorial Organs Handling Cases with High Quality and Efficiency in Performing Their Duties", mentioning the case of illegal disclosure of important information by Zhangzidao Group Co., Ltd., which pointed out in the typical significance: accurately accusing listed companies of the crime of illegal disclosure of important information sends a clear signal of zero tolerance.
Article 161 of the Criminal Law stipulates the crime of illegal disclosure and non-disclosure of important information, which punishes a specific entity with an obligation to disclose information to shareholders and the public in violation of regulations (providing false or concealing financial accounting reports that conceal important facts), or failing to disclose in violation of regulations (failing to disclose other important information that should be disclosed in accordance with the law, such as major litigation, arbitration, guarantees, related party transactions, etc.), and meets the requirements of the Supreme People's Procuratorate and the Ministry of Public Security. Provisions on Standards for Filing and Prosecution of Criminal Cases under the Jurisdiction of Public Security Organs (II) in specific circumstances as provided for in Article 6.
In practice, most of the violations of information disclosure by listed companies are reflected in the violation of the principle of authenticity of information disclosure, inflating revenues and profits in financial accounting reports, or disclosing losses as profits or profits as losses in the company's financial and accounting reports. In the case of illegal disclosure of important information by Zhangmoudao Group shares, a typical case announced by the Supreme People's Procuratorate, Wu Moumou, the former chairman and president of Zhangmoudao Company, in order to avoid the company's suspension of listing due to losses for three consecutive years, instructed the company's personnel to produce false materials to reduce operating costs and non-operating expenses, and falsely inflated profits in the publicly disclosed annual report, which was finally found by the court to constitute the crime of illegal disclosure of important information. It is worth noting that the Guiding Cases issued by the Supreme People's Court are clearIf a listed company commits continuous financial fraud before and after applying for listing, if it commits the crime of fraudulent issuance and the crime of illegal disclosure and non-disclosure of important information, it is not implicated, and shall be punished concurrently
The Amendment (11) to the Criminal Law basically maintains the same pace as the crime of fraudulent issuance, first, the statutory penalty has been greatly increased, from the original maximum three-year fixed-term imprisonment to 10-year fixed-term imprisonment, and the upper limit of fines has been abolished; The second is to expand the subject of responsibility for this crime, including the controlling shareholders and actual controllers of listed companies in the scope of responsibility for this crime. Therefore, directors, supervisors and senior executives of listed companies, as well as controlling shareholders, actual controllers, and intermediary personnel should pay attention to the criminal legal risks of this crime.
(5) The crime of breach of trust and harming the interests of listed companies
Article 169-1 of the Criminal Law stipulates that a director, supervisor, senior manager, controlling shareholder or actual controller of a listed company shall be investigated for criminal liability if he violates his duty of loyalty to the company and uses his position to facilitate the engagement of improper related party transactions, causing major losses to the interests of the listed company.
From the perspective of case filing criteria, if it causes direct economic losses of more than 1.5 million yuan to the listed company, or ultimately causes the company to be terminated from listing and trading, it will be prosecuted. For example, in the case of Jiang Mouzheng, the original actual controller of ST Sheng, and others suspected of breach of trust and damage to a listed company, the original actual controller of the company used his position as the controlling shareholder to borrow money in the name of the company on behalf of a group through illegal operations without the deliberation of the board of directors and the general meeting of shareholders, and illegally occupied nearly 92,485 of the company's funds160,000 yuan, in addition, the actual controller also violated the external guarantee of nearly 61.25 million yuan, which brought huge losses to the company, and was finally found by the court to be guilty of breach of trust and damage to the interests of the listed company.
(6) Bribery crimes
Counterfeiting is a "systematic project", which usually requires the cooperation of multiple parties, and can easily breed related crimes such as bribery. According to the "Criminal Verdict of the First Instance of Sun Xiaobo**" released by the China Judgment Network, Sun Xiaobo, a former member of the GEM Issuance Examination Committee of the China Securities Regulatory Commission, is serving as the first member of the China Securities Regulatory Commission.
During the first, second and third sessions of the GEM Issuance Examination Committee, he used his position to provide assistance and seek benefits for the IPO applications of a number of companies to be listed to pass the review of the Issuance Examination Committee, or took advantage of his authority or position to introduce and contact the members of the Issuance Examination Committee and relevant personnel to provide assistance to the enterprises to be listed, and illegally accepted money and goods from relevant enterprises and sponsor agency personnel for many times, totaling more than 7.78 million yuan. The judgment disclosed the fact that 45 companies to be listed on the stock market had offered bribes.
Although with the implementation of the comprehensive registration system, the Issuance Examination Committee has become a historical term, but the criminal risk of bribery will not end there, if the person in charge of the enterprise to be listed or the staff of the intermediary agency to whitewash the counterfeiting behavior, transfer property benefits to the regulator or upstream and downstream enterprises, will be suspected of the crime of bribery, the crime of offering bribes to the unit or the crime of offering bribes to non-state employees. Similarly, if the person in charge of a listed company "covers" and accepts bribes for the fraudulent behavior of the company to be listed, he will be suspected of the crime of non-state functionary.
Judging from the recent intensive actions of financial regulators and judicial organs, related industries may usher in a round of "strike hard" in the coming period. Relevant enterprises, executives, intermediaries and intermediary employees shall adhere to the bottom line of compliance in the process of operation and practice, and avoid incurring the risk of administrative punishment or even criminal legal risk!
About the Author:
Lawyer Han Shuai is the director of the Criminal Committee of Beijing Yunting Law Firm, the deputy secretary-general of the Criminal Committee of the Beijing Chaoyang District Lawyers Association, and the off-campus tutor of Beijing University of Technology. He has worked in the procuratorate of a municipality directly under the central government and the legal compliance department of a financial group. Possess ** qualifications, ** qualifications. The leading lawyer team members have obtained a master's degree in law, have a deep foundation in science and practice, and have handled nearly 1,000 cases of various kinds. He has provided a full range of legal services for Asia's largest chemical product manufacturer, the president of a well-known A-share listed company, the CEO of a financial group, the former executive of a multinational enterprise (Fortune 500), the chairman of a real estate enterprise group in Beijing, the founder (CTO) of an industry-leading enterprise, the chairman of a state-owned enterprise in Chongqing, and many entrepreneurs, executives and leading cadres, and achieved good results. ** has successfully handled bail pending trial in a number of cases, and obtained the defense effect of withdrawing the case, not approving arrest, not prosecuting or not guilty verdict. The team is providing regular legal services and special services for a number of listed companies, financial holding groups, ** enterprises, etc. Team members have been invited to give lectures at famous universities and enterprises such as the Criminal Science Institute of Beijing Normal University, CICC Resources, PICC Property Insurance, Sina Digital, Didi, and Shede Liquor.
The team has in-depth cultivation in the following areas: (1) defense of major cases, especially economic, financial and duty crime cases;(2) Dispute resolution in intersecting criminal and civil cases;(3) Prevention and control of corporate criminal legal risks.