Original title: Investors in the second instance of Huaze Cobalt and Nickel Misrepresentation Case Win, and Guosen Securities and Ruihua’s Joint Compensation Liability has been increased to 100%, which will have a demonstrative effect on similar cases
Summary
[In the second instance of Huaze Cobalt and Nickel false statement case, the investor won the joint and several liability of Guosen Securities and Ruihua to 100%, which will have a demonstrative effect on similar cases]Recently, China Judgment Document Network disclosed the sponsorship of Guosen Securities “Huaze Cobalt and Nickel” The civil compensation case of the project received the final judgment. The liability of Guosen Securities and Ruihua Certified Public Accountants in the case of the false statement liability dispute of Huaze Cobalt and Nickel Securities was assumed by the first-instance judgment to bear 40% and 60% of the joint compensation liability respectively. , Changed to bear 100% joint and several liability. (21st Century Business Herald)
The listed company was sued for false statements, and the sponsor and the intermediary were judged to bear 100% joint and several liability in the second instance. This judgment will undoubtedly have a significant impact on similar cases in the future.
Recently, China Judgment Document Network disclosedGuosen SecuritiesThe “Huaze Cobalt and Nickel” sponsored project civil compensation case has been finalized by the relevant judgments, which willGuosen SecuritiesIn the case of Huaze Cobalt and Nickel Securities’ misrepresentation liability dispute with Ruihua Certified Public Accountants, the first-instance judgment shall bear 40% and 60% of joint and several liability, respectively, and both shall bear 100% of joint and several liability.
In this regard, the Shenzhen Securities Regulatory Bureau believes that this judgment will have a demonstrative effect on future cases of misrepresentation infringement compensation. The quality of investment banking practice is not only a key factor for the success of the registration system reform, but also determines whether securities companies will bear huge civil compensations in the future.
Huaze Cobalt and Nickel misrepresented, intermediary agency was punished
In January 2014, Juyou Network, which was suspended from the Shenzhen Stock Exchange due to losses for three consecutive yearsReorganizationThe company was renamed Huaze Cobalt and Nickel and resumed its listing.In the process of this reorganization and listing, Juyou Networks andGuosen SecuritiesSigned a listing resumption sponsorship agreement and entrusted Guosen Securities as the sponsor for the resumption of listing of Juyou.com.
However, less than two years after the resumption of listing, Huaze Cobalt and Nickel received the “Investigation Notice” from the China Securities Regulatory Commission. Due to the company’s suspicion of false information disclosure and other securities violations, the China Securities Regulatory Commission decided to file an investigation against Huaze Cobalt and Nickel.
In 2018, the CSRC decided to take corrective measures against Huaze Cobalt and Nickel due to failure to disclose related parties’ non-operating capital occupation, related transactions, provision of financing guarantees, etc., as well as invalid bill entry and other behaviors in accordance with regulations. And a fine of 600,000 yuan.Wang Tao, Chairman of Huaze Cobalt and Nickel and 17 othersExecutivesThey also received warnings and fines ranging from 30,000 to 900,000 yuan. The related fines amounted to 3.58 million yuan.
According to the “Advance Notice of Administrative Penalties and Market Banning” issued by the China Securities Regulatory Commission in July 2017, Huaze Cobalt and Nickel failed to disclose in a timely manner in 2013, 2014 and the first half of 2015, and did not disclose related parties in the relevant annual reports. Non-operating occupation of funds and related related transactions.
Guosen Securities and Ruihua Certified Public Accountants, respectively, as the sponsor and audit agency for the resumption of the listing of Huaze Cobalt and Nickel, were also subject to regulatory penalties.
Among them, Guosen Securities was required to correct the sponsorship business behavior and was given a warning. In addition, the China Securities Regulatory Commission confiscated 10 million yuan of the company’s related sponsorship business income and imposed a fine of 3 million yuan.Guosen SecuritiesM&AReorganize the financial advisory business behavior, order it to make corrections, and confiscateMergers and acquisitionsFinancial advisory business income was 6 million yuan, and a fine of 18 million yuan was imposed.
On the other hand, Ruihua Accounting Firm issued an audit report with false records, failed to implement effective procedures to identify the fraud risks of Huaze Cobalt and Nickel, and failed to maintain a significant abnormal situation where the balance of bills receivable surged and decreased before and after the audit base date. Necessary professional suspicion, failure to identify the risk of material misstatement in financial reports in a timely manner, and failing to pay due attention to the abnormal situation in the reply letter of the inquiry letter. The China Securities Regulatory Commission determined that the audit procedures implemented by Ruihua Certified Public Accountants were insufficient to obtain sufficient and appropriate audit evidence, and finally confiscated 1.3 million yuan of Ruihua Certified Public Accountants’ business income and imposed a fine of 3.9 million yuan.
Investors have long filed a lawsuit against Huaze Cobalt and Nickel’s securities false statement case.
Taking Guosen Securities as an example, the company has successively received relevant case materials since October 31, 2018. The content of the annual report shows that as of the end of 2020, a total of 4,319 related lawsuits involving Guosen Securities have involved a total of 1.313 billion yuan. Among them, the court has made first-instance judgments on some cases from 2019 to 2020, and Guosen Securities and Ruihua Certified Public Accountants have been sentenced to bear 40% and 60% joint and several liability respectively.
The intermediary agency’s joint liability for compensation in the second instance is raised to 100%
However, the determination of joint and several liability in the above-mentioned Huaze Cobalt and Nickel Securities false statement case has ushered in a major change in the second-instance judgment.
According to the second-instance judgments of related cases disclosed by China Judgment Documents.com, Guosen Securities and Ruihua Certified Public Accountants were all sentenced to bear 100% joint and several liability to investors for their infringements.
The investor who appealed stated that the most harmful illegal act involved in the false statements of Huaze Cobalt and Nickel is that the actual controller misappropriated 1.3 billion yuan of funds of the listed company through a large number of invalid photocopied bills. As the sponsor, Guosen Securities will be able to discover problems as long as it duly rechecks the original bills. Guosen Securities’ responsibilities and obligations for reviewing the original bills are not a question of its ability or expertise, but a question of attitude and willingness. The first-instance judgment found that Guosen Securities’ main fault was “negligence” and “based on negligence” in the joint infringement, which was inconsistent with the facts.
The investor also pointed out that even if it is necessary to distinguish between Guosen Securities and Ruihua Securities, the first-instance court held that Ruihua should bear greater responsibility than Guosen Securities. As a sponsor, a securities company is in a central position in the sponsorship business and other listed company businesses, and its role and responsibilities are much higher than those of other intermediary service organizations such as accounting firms. This can also be corroborated by the comparison of the remuneration received by the two. Guosen Securities and Ruihua received 7 million yuan and 1.3 million yuan respectively. Therefore, the judgment of the first instance confirmed that Ruihua Certified Public Accountants should bear more responsibility than Guosen Securities should bear, which is inconsistent with the facts.
In response to the investor’s grounds for litigation, Guosen Securities believes that the first-instance judgment to assume 40% of the company’s liability ratio was based on the fact that Guosen Securities did not have strong means to control the actions of Huaze Cobalt and Nickel and its actual controller, and was based on negligence.
Guosen Securities further stated that when the court of first instance has confirmed that the main persons responsible for the misrepresentation involved in the case are the listed company and the actual controller, the judgment that Guosen Securities and Ruihua Certified Public Accountants have undertaken is too high. In addition, in the case where the important person responsible for the Huaze Cobalt and Nickel case and the actual controller of Huaze Cobalt and Nickel, Wang Yinghu and his son, are not parties to the litigation, the first-instance judgment will only “divide responsibility for listed companies, securities companies and accounting firms.” “Lack of evidence. “No matter what kind of fault division of responsibility is based on Guosen Securities, the possible liability for investors’ losses should not exceed 25%.”
Ruihua Certified Public Accountants further advocated that it should not bear any liability for compensation in this case, and held that it was wrong to apply the law in the first instance judgment that it should bear 60% of the liability.
Regarding the definition of the scope of the responsibility of the relevant responsible person, the Sichuan Provincial Higher People’s Court held that in the second instance, it was judged whether the securities underwriters, securities listing recommenders, and professional intermediary service agencies should bear joint and several liability for all losses caused to investors by the misrepresentation of listed companies. The key is whether the agency “knows or should know” about the misrepresentation of listed companies.
“If it is’know or should know’, it constitutes a joint infringement and requires joint liability. This is a legal liability and will not change due to any circumstances.” The Sichuan Provincial High Court said.As a professional sponsor and audit institution of listed companies, if they perform their duties diligently in accordance with the practice rules and perform the necessary duty of care, the misrepresentation of Huaze Cobalt and Nickel should be discovered. Its fault is not a general fault, but a major fault. The “Several Provisions of the Supreme People’s Court on the Trial of Civil Compensation Cases Caused by False Statements in the Securities Market” Article 27 “know or should be known” constitutes a joint infringement and shall be jointly and severally liable.
In the end, the court ruled that Guosen Securities and Ruihua should bear joint and several liability for the compensation obligations of Huaze Cobalt and Nickel, and the joint liability of the two parties also increased from 40% and 60% in the first instance to 100%.
“This judgment will have a demonstrative effect in future cases of misrepresentation infringement compensation.” Regarding the court’s judgment, the Shenzhen Securities Regulatory Bureau stated in the latest issue of institutional supervision news that the quality of investment banking business practice is not only the key to the success of the registration system reform. Factors also determine whether the securities company will bear huge civil compensation in the future.
(Source: 21st Century Business Herald)
(Editor in charge: DF062)
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