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Preface

In recent years, the scale of China's capital market has continued to grow and the level has become more and more perfect. At the same time, some companies and individuals take risks to seek illegal interests, leading to various kinds of violations and criminal acts of insider trading, market manipulation and false statements from time to time. The main reason is that the original "Securities Law" and "criminal law" and other laws and regulations impose too light penalties on securities violations, resulting in low illegal costs. With the reform of China's capital market entering the "deep-water area", the "rule of the city by law" has become the consensus of regulators and judicial organs, and it has been repeatedly proposed to ensure the healthy and benign development of the capital market by severe punishment and laws. In this context, how securities practitioners should resolve legal risks, especially the risk of criminal proceedings against securities crimes, has become a key issue for executives of listed companies and managers of fund companies.

I. Under the current policy and legal framework, the risk of securities violations violating the criminal law has greatly increased

As China's listed companies issue securities from the "approval system" to the "registration system", and the front-end access has been greatly relaxed, more listed companies will issue securities in the future, but this does not mean that the state's supervision of the securities market will tend to be lax. The inevitable consequence of wide access and strict supervision is that the absolute number of securities violation cases, especially criminal cases, will greatly increase, and the securities crime cases involving the intersection of criminal law and civil law and criminal law will become the norm. With the improvement of the supporting legal system of the securities market, it can be predicted that more and more cases of securities violations in China will be solved by judicial means in the future.

(picture from the network)

The order of securities market is a part of national financial security. In recent years, Securities Misrepresentation cases such as COMTEX and Kangmei pharmaceutical have had a bad impact on the society. For this reason, the CSRC has repeatedly said that it will work with the public security organs and other departments to strengthen the supervision of the securities market, form a joint force, fully implement the concept of "zero tolerance" and crack down on illegal securities activities according to law. The Eleventh Amendment to the criminal law, which came into force on March 1st, 2021, is the legislative response to the above background. The following will briefly introduce the revised contents of the new criminal law on securities crimes.

First of all, the original criminal law set a fine limit for the crime of fraudulent issuance of shares and bonds, which stipulates that "a fine of more than 1% and less than 5% of the amount of illegally raised funds shall be imposed or imposed only". However, in the new law, this fine limit has been abolished, which means that the determination of the fine for this crime in the future will largely depend on the discretion of the court. The new law also adds a file of sentencing circumstances to this crime, which stipulates that if the amount is especially huge, the consequences are particularly serious or there are other serious circumstances, they can be sentenced to fixed-term imprisonment of not less than five years.

Secondly, the original criminal law has already severely punished the crimes of manipulating the securities and futures markets, stipulating that the crimes of illegal disclosure and non disclosure of important information shall be sentenced to fixed-term imprisonment of not more than three years, and the crimes of fabricating and disseminating false information in securities trading can be sentenced to fixed-term imprisonment of up to five years; Whoever commits the crime of manipulating the securities market, if the circumstances are serious, shall be sentenced to fixed-term imprisonment of not more than five years; 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; For the issuer, listed company, its directors, supervisors, senior executives, controlling shareholders, actual controllers and other special subjects, as long as the illegal income reaches 5million yuan, it is "particularly serious". The new law further adds three kinds of incriminating circumstances, and clearly defines the common violations such as "hat snatching trading" as crimes, which means that some acts that may only be subject to administrative punishment or civil compensation in the past will now violate the criminal law.

In addition, the new criminal law has increased the number of recommendation agency personnel as the subject of the crime for the crime of providing false supporting documents and the crime of issuing major untrue supporting documents, and added a file of sentencing circumstances, increasing the term of imprisonment; For the crimes of illegal disclosure and non disclosure of important information, the upper limit of fixed-term imprisonment has also been raised, and the upper limit of fines has been abolished. It can be seen from this that the new criminal law has greatly increased the penalties for securities crimes, further increasing the illegal cost of securities violations. The risk of senior executives and securities practitioners of listed companies violating the criminal law has further increased.

II. The role of defense lawyers in securities crime cases will be more prominent

It is self-evident that defense lawyers play an important role in securities crime litigation. For example, the lawyer may, as the agent of the sued listed company, put forward opinions to the court, including: examining whether the plaintiff is a qualified subject, whether the important facts and circumstances of the illegal acts of the listed company are correctly identified, and whether the identification of the implementation date and disclosure date of key false statements in the case of false statements is accurate; Whether the determination of the benchmark date and benchmark price as the basis of the judgment is reasonable, and whether the misrepresentation is significant; Whether the calculation method of investment loss and the determination of loss amount are reasonable, and whether the calculation method is wrong; Whether there is a causal relationship between the plaintiff's loss and the defendant's misrepresentation of the listed company; Whether the investment losses caused by system risks and other factors have been reasonably eliminated within the scope of compensation claimed by the plaintiff, etc.

In addition, what is often overlooked is the role of lawyers in securities unit crime cases. The criminal law of our country implements the double punishment system for unit crimes, that is, punishing the unit and the directly responsible persons in the unit at the same time. However, in judicial practice, most natural person defendants have lawyers to defend, while the units as defendants often do not have lawyers to represent them. In fact, in the case of securities unit crime, if the defendant unit gets a light sentence, it also has a self-evident positive significance for the natural persons among the defendants: on the one hand, it means that the court recognizes that the circumstances of unit crime are relatively light and may adopt a light sentence; On the other hand, if the unit can be retained, its legitimate business can continue to be profitable, which is also in the interests of the defendant. It is believed that more enterprise managers will realize the importance of hiring defense lawyers for the company in the future.

Of course, the trend of strict supervision of the securities market in the future also puts forward higher requirements for the professional ability of defense lawyers. The securities market itself has its own particularity different from the physical market. In practice, many securities crime cases have a large number of victims, involving a huge amount of money, and the number of relevant evidence materials is often very large. It not only involves a large number of transaction records, but also the relationship between people and laws is usually complex; In addition, securities trading has the characteristics of paperless, information, networking and intelligence, so securities crimes such as insider trading, illegal disclosure and market manipulation have strong professionalism and concealment. Effective criminal defense of these crimes also requires a high degree of professional knowledge to be competent.

Due to the high professionalism involved in securities crime cases, there may be great differences in the judgment of the same illegal act between different supervision subjects. For example, for the same securities violation case, the amount recognized by the court may be several times the amount recognized by the CSRC. In addition, securities crime cases often involve the intersection of criminal law and civil law, and the intersection of execution, which also puts forward high requirements for the professional fields involved by defense lawyers.

In case of being charged with a securities crime, which defense strategy is the most effective?

Criminal defense usually includes four strategies: factual defense, legal defense, procedural defense and sentencing circumstances defense. In the criminal defense of securities crimes, there are both general defense strategies and defense strategies for special charges. The experienced defense lawyers will integrate the above strategies, adapt to circumstances and maximize the legitimate rights and interests of the defendants.

First of all, in terms of general defense strategies, if the defendant voluntarily surrenders to the case or actively cooperates with the investigation under the notice of the public security organ, it can be recognized as having the circumstances of voluntary surrender, so as to reduce or mitigate the punishment. In addition, if the party is an accessory, or has such circumstances as meritorious service, guilty confession and punishment that should be reduced, or actively returning stolen goods, paying fines and other discretionary circumstances that should be reduced, they can be used as sentencing circumstances proposed to the judge.

For example, in the case of Nantong people's Procuratorate of Jiangsu Province v. liumouchun and chenmouling for insider trading (see Bulletin of the Supreme People's court, No. 1, 2013), liumouchun, as a department associate of Nanjing municipal government, negotiated with Gaochun County Government on the reorganization of Gaochun ceramics company by Gaochun No. 14 Research Institute, immediately disclosed the insider information to the defendant chenmouling due to his performance of duties, It is particularly serious to make joint use of the insider information known for stock trading. The defense lawyer pointed out to the court that the two defendants in this case were first-time offenders and accidental offenders, and all the stolen money was returned after the incident. They had a good attitude of pleading guilty in the court trial, and could be given a lighter punishment as appropriate. The court exempted chenqiaoling from punishment according to law based on the criminal circumstances and repentance of her passive implementation of insider trading at the instigation of liubaochun as a non status criminal.

In the case investigation and trial procedures, lawyers can also strive to obtain a guarantor for the suspect pending trial. For example, in the cases of wumouchang and others' crime of manipulating the securities and futures market [(2017) Su 01 Xing Chu No. 31] and tangmoubo and Yuan Moulin's crime of manipulating the securities market [(2019) Hu 01 Xing Chu No. 19], the defense lawyers successfully secured bail for the second defendant and the third defendant. Since then, these defendants have also received probation and achieved good defense results.

In addition, lawyers can also start with the legitimacy of the evidence collection process, strive to exclude some illegal evidence, so as to achieve the purpose of denying the facts of the alleged crime. Because a large amount of evidence will be involved in securities crime cases, including stock trading details, network IP address, judicial expertise, the confirmation letter of the CSRC, the testimony of the parties and other forms, the legitimacy of the above evidence can be questioned by defense lawyers. If it is found that there are flaws or illegal circumstances in the collection procedures, or extorting confessions by torture, it can apply to the court for excluding this part of evidence. For ambiguous evidence, lawyers can reasonably use the principle of "no suspected crime" to strive for innocence or deny criminal facts for the parties.

Secondly, lawyers can adopt special defense strategies suitable for different charges. Here we only take the crime of insider trading as an example, because this crime is one of the securities crimes with the highest incidence in judicial practice, accounting for more than 40% in recent years. For the crime of insider trading, lawyers can choose multiple defense channels according to the actual situation of the case:

First, this crime requires the actor to obtain the inside information illegally. If the actor is not an insider of the inside information and obtains the information through legal channels, it should not be recognized as the crime of insider trading. At the same time, to determine that the actor has the subject status of this crime, the judicial organ needs to prove that "he still uses the insider information to engage in relevant transactions when he knows that it is the insider information leaked by the insider or that it is the insider information illegally obtained by others". If the defense lawyer can prove that the party is not aware subjectively, he has the opportunity to overturn the prosecution's accusation.

Second, the subjective aspect of this crime is intentional and has the purpose of illegal profit-making. This means that the actor must have subjective intention and have the intention to make profits for himself or others. Therefore, if the lawyer can prove that the defendant negligently divulges inside information, it will not constitute this crime.

Third, the identification of "inside information" can be defended around the identification letter of the CSRC, such as whether there is inside information, how long the sensitive period of inside information is, and who is the insider? And so on to find evidence that can overturn or weaken the prosecution's allegations.

Fourth, according to Article 182 of the criminal law, the crime of manipulating the securities and futures markets must be "serious" to constitute this crime. As for the standard of "serious circumstances", articles 2 and 3 of the interpretation of the Supreme People's court and the Supreme People's Procuratorate on Several Issues concerning the application of law in handling criminal cases of manipulating the securities and futures markets, which were implemented on July 1, 2019, have been specifically detailed. Article 7 of this interpretation also stipulates that those who meet this standard but whose circumstances are relatively minor may be exempted from prosecution or criminal punishment; Those who fail to meet this standard and whose circumstances are obviously minor may not be treated as crimes.

The above is the common defense strategy of the crime of insider trading. Other charges in securities crimes also have their own special defense strategies. Space is limited here and will be discussed in future topics.

Epilogue

Securities crime has long been one of the key financial crimes in judicial practice. With the implementation of "zero tolerance" punishment for financial violations by regulatory authorities and the improvement of the legal responsibility system for crimes in the capital market, the absolute number of such criminal cases will further increase in the future. The insiders of listed companies and fund companies shall pay special attention to the regulatory trend, understand the necessary common sense of securities crimes, and avoid violating the "red line" without knowing it; In case of criminal charges, professional lawyers should be hired to defend in time to safeguard their legitimate rights and interests to the greatest extent in the proceedings.