Xinhua News Agency, Guangzhou, November 12 (Reporter Li Xiongying) On November 12, the Guangzhou Intermediate People’s Court made a first-instance judgment on the country’s first securities class action lawsuit and ordered Kangmei Pharmaceutical Co., Ltd. to compensate securities investment for infringement due to false statements in the annual report. The former chairman and general manager Ma Xingtian and the five directly responsible personnel, Zhengzhong Zhujiang Certified Public Accountants and the directly responsible personnel shall bear all joint and several liability for damages of 2.459 billion yuan. The 13 related responsible personnel shall bear partial joint and several liability for compensation according to the degree of fault.
On May 13, 2020, due to false records and major omissions in the annual and semi-annual reports of Kangmei Pharmaceutical, the China Securities Regulatory Commission imposed a fine and an administrative penalty decision on the company and 21 responsible persons.
On February 18 this year, the China Securities Regulatory Commission imposed administrative penalties on the Zhengzhong Zhujiang Accounting Office who was in charge of the financial audit of Kangmei Pharmaceutical and related responsible personnel.
On April 8, China Securities Small and Medium Investor Service Center Co., Ltd. was specially authorized by some securities investors to apply to the Guangzhou Intermediate People's Court to participate in the lawsuit as a representative.
After the Supreme People's Court designated jurisdiction, the Guangzhou Intermediate Court applied special representative litigation procedures to conduct a public hearing on this nation’s first securities class action case.
The court found that in the annual report and semi-annual report disclosed by Kangmei Pharmaceutical, there was a connection between inflated operating income, interest income and operating profit, inflated currency funds, and failure to disclose non-operating capital occupation by shareholders and their related parties in accordance with regulations. Regarding the transaction, the financial statement audit report issued by Zhengzhong Zhujiang Accounting Office contained false records, which constituted securities misrepresentation.
After evaluation by professional institutions, the actual loss of investors was 2.459 billion yuan.
The court held that Kangmei Pharmaceuticals made false statements in the annual and semi-annual reports of listed companies, which caused the investment losses of securities investors and should be liable for compensation.
Ma Xingtian, Xu Dongjin and other organizations plan financial fraud and shall bear all joint and several liability for the actual losses of investors.
The relevant auditors of Zhengzhong Zhujiang violated the practice standards and caused financial frauds that were not discovered by the audit. They shall bear all joint and several liability for compensation.
Although some senior executives of the company did not directly participate in the fraud, they signed to confirm the authenticity of the financial report and should bear part of the joint liability for compensation based on the magnitude of the fault.
According to the Securities Law and the relevant judicial interpretations of the Supreme People's Court, the China Securities Small and Medium Investor Service Center Co., Ltd. participated in the class action as the special representative of more than 55,000 investors.
The court commissioned the China Securities Investor Protection Fund Co., Ltd. to calculate the plaintiff’s investment losses and other risk factors, and organize the parties to cross-examine.
Some representatives of the National People's Congress, members of the CPPCC, representatives of securities investors and journalists attended the trial and sentencing of the case.
The application of the special representative system in civil lawsuits for securities infringement is conducive to protecting the legitimate rights and interests of small and medium-sized securities investors, and is an important measure taken by the people's courts to increase judicial protection of the order of the securities market.