Since the beginning of this year, regulatory authorities have continued to use "zero tolerance" to crack down on various illegal activities in the capital market and strengthen law enforcement and deterrence.
According to statistics from the China Securities Regulatory Commission website, the China Securities Regulatory Commission and local securities regulatory bureaus issued 181 administrative penalty decisions (hereinafter referred to as fines) in the first half of the year, with a total fine and confiscation amount of 2.42163 billion yuan. The amount of fines and confiscation was close to that of the whole of last year (2.667 billion yuan). Among them, illegal disclosure of information, insider trading, and illegal private equity funds ranked the top three, with 82, 29, and 26 fines respectively.
After comparing with previous years, reporters found that this year there has been a significant increase in fines for private equity violations; penalties for lending securities accounts, illegal securities investment consulting services, etc. have become normalized; huge fines are mostly concentrated in illegal activities that have been fined for multiple violations and have not corrected despite repeated corrections.
Zheng Yu, a professor at the School of International Finance and Law at East China University of Political Science and Law, told a reporter from Securities Daily that since the beginning of this year, the regulatory authorities’ penalties have shown a wide coverage. Among the fines where false statements still dominate, the number of penalties for illegal bond disclosures has increased, and the signal of strong supervision is obvious. In the second half of the year, regulatory authorities will still maintain "zero tolerance" for illegal activities in the capital market. The types of crackdowns will mainly be traditional false statements, but will also cover various new types of illegal activities, while the intensity of crackdowns will not be reduced.
Those who refuse to change despite repeated punishments will be severely punished
Since the beginning of this year, letter disclosure violations and insider trading are still the hardest hit areas, but there have been some new changes in the punishment situation. For example, in the first half of the year, there were an increase in the number of fines for illegal disclosure of letters involving the bond market, with 12 fines, one of which involved the fraudulent issuance of corporate bonds. Among the insider trading fines, the number of fines involving insider trading in the same stock increased, that is, the number of insider trading cases increased. In addition, those who leak inside information and encourage others to engage in insider trading will also be punished.
Although there were only seven fines for market manipulation in the first half of the year, most of them were huge fines, with a total fine of 1.692 billion yuan. For those who violate the law repeatedly and refuse to correct their behavior after repeated punishments, the regulatory authorities will strike hard and issue sky-high fines. The top two fines in the first half of the year were fines for market manipulation.
For example, Wang Fatong and Dong Bangqing used 74 securities accounts to borrow money from others and trade four stocks with leverage. They were fined four by the China Securities Regulatory Commission. The total amount of fines was as high as 1.127 billion yuan, making it the highest fine ever issued by the China Securities Regulatory Commission during the year. As early as 2018, Wang Fatong was fined three times by the China Securities Regulatory Commission for manipulating three stocks including "Rutong Shares" and was fined 1.389 billion yuan. At the same time, he was banned from the market for life.
Ren Liangcheng is also a "frequent person" on the Securities Regulatory Commission's fines. In 2015, 2016, and 2018, he was punished by the Securities Regulatory Commission for manipulating multiple stocks. This year, he was once again fined 297 million yuan by the China Securities Regulatory Commission for manipulating 16 stocks (one of which was involved in a criminal case and was not punished). The amount of fines and forfeitures ranked second in the year. At the same time, Ren Liangcheng was banned from the securities market for life.
"Ren Liangcheng's stock manipulation behavior lasted for a long time, manipulated many stocks, and involved a large amount of money, which has seriously disrupted the order of the securities market and caused serious social impact. Ren Liangcheng has been administratively punished three times by the China Securities Regulatory Commission and is currently being prosecuted for suspected securities market manipulation. The court's first-instance criminal judgment has determined that he constitutes the crime of securities market manipulation." The China Securities Regulatory Commission stated that Ren Liangcheng is a typical case of unrepentant and defiant crime. His behavior is particularly bad and should be severely punished in accordance with the law.
"Increasing the intensity of punishment for the same punishment object reflects the 'zero tolerance' attitude of the capital market." Zhu Yiyi, a lawyer at Guoco Law Firm (Shanghai), said in an interview with a reporter from Securities Daily that he had received regulatory penalties for illegal activities in the capital market, but failed to take warning and committed violations again. The degree of subjective malignancy is deeper. Increasing the intensity of punishment is necessary. While punishing violators in accordance with the law, it also serves as a warning to other market entities.
Private placement fines increased significantly
The increase in fines for illegal private equity funds is an obvious feature of the China Securities Regulatory Commission’s fines this year. The above-mentioned 26 fines involve 10 private equity institutions and their relevant persons in charge. Among them, the Shanghai Securities Regulatory Bureau issued 24 administrative penalty decisions to 8 private equity investment funds at the end of June. The actual controllers of the 8 private equity funds were Hu Mougang and Huang Moubo. The illegal activities included engaging in investment activities that damaged fund property and the interests of investors, failing to perform disclosure obligations as required, failing to submit annual financial reports as required, and failing to properly preserve information related to private equity fund business.
"From the perspective of the number of funds and asset scale, private equity funds are already an important type of investors in the capital market. Private equity investment funds are large in number and small in scale, and their compliance level and even compliance awareness are relatively low. With the continuous improvement of the China Securities Regulatory Commission's enforcement capabilities, it is not surprising that the number of private equity fund violation cases investigated and dealt with has increased." Chen Bo, a partner at DeHeng (Shanghai) Law Firm, told a reporter from Securities Daily.
In addition, some new illegal acts are also punished. For example, Jiutai Fund, known as the "King of Fixed Increase", was punished by the China Securities Regulatory Commission for participating in "guaranteed fixed increase" and using fund assets to seek benefits for people other than fund share holders. According to the administrative penalty decision, in 2017, Jiutai Fund, through its subsidiary fund Jiutai Jiuli, participated in guaranteed fixed increases in five listed companies. The actual controllers or shareholders signed agreements involving income guarantees, with annualized income ranging from 7% to 13%. In addition, the actual controller of Jiutai Fund also instructed Jiutai Jiuli to buy stocks of a certain company. The actual controller of the company promised that the annual investment return rate (compound interest) realized after selling and realizing the shares in the future will not be less than 12%, otherwise the shortfall will be compensated in cash.
However, until the liquidation of Jiutai Jiuli, Jiutai Jiuli did not disclose the minimum guarantee to fund share holders, and the fund liquidation assets did not include compensation. As of the time of the China Securities Regulatory Commission's investigation, only three shareholders of listed companies had actually paid compensation, totaling 223.8492 million yuan, and all the compensation was remitted to the bank account of Jiutai Fund shareholder Jiuzhou Securities.
In fact, the new refinancing regulations introduced in 2020 have clearly prohibited "guaranteed fixed increase". Since then, the Supreme Law has made it clear that guaranteed fixed increase agreements are not protected by law. Chen Bo said that under normal circumstances, the China Securities Regulatory Commission will not punish fixed-increase investors after the "guaranteed increase" incident. Individual private equity funds and relevant responsible persons were fined. The reason was not the "guaranteed increase" agreement, but breach of trust that harmed the interests of investors in the products they managed.
Full coverage of new illegal activities
In recent years, penalties for some new types of illegal acts have become increasingly normalized. The new securities law expanded the scope of the prohibition on lending securities accounts from "legal persons" to "any unit or individual." In the first half of the year, a total of three fines were issued involving lending stock accounts. Correspondingly, entities and individuals who borrow securities accounts are also punished for different illegal acts.
"The increase in fines for lending securities accounts and other matters related to the new securities law also reflects the 'zero tolerance' of supervision. By strengthening penalties, we will warn relevant market entities and reduce the occurrence of relevant violations of laws and regulations." Zhu Yiyi said.
In addition, the supervision of securities investment consulting business has become stricter, and three fines were issued during the year involving violations of the securities investment consulting business. Among them, Fujian Tianxin was revoked from the securities investment consulting business because the documents and materials submitted to the securities regulatory authorities contained false statements or major omissions, and the circumstances were serious.
"In recent years, the regulatory authorities have continuously broadened the scope of crackdowns based on the new market situation to cover all types of illegal activities, embodying the regulatory concept of strong supervision and zero tolerance." Zheng Yu said.
Next, Zhu Yiyi said that the capital market will focus on strengthening the protection of market order and ecological shaping under the comprehensive registration system, continue to maintain a zero-tolerance attitude, increase the crackdown on illegal activities in the capital market, and protect the interests of investors.
In addition, for some market entities seeking illegal benefits by exploiting legal loopholes, leading to some new violations of laws and regulations in the capital market, regulatory authorities need to continuously improve and revise existing systems, and at the same time strengthen crackdowns to act as a deterrent and warning to relevant market entities.
