Involved in LETV Securities Misrepresentation liability dispute, three securities companies were sued to bear joint and several liability for compensation.
Recently, the Beijing Financial court filed a lawsuit against 21 defendants including LETV, involving an amount of more than 4.5 billion yuan. In addition to 14 natural persons such as LETV and Jia Yueting, the defendants also include three securities companies such as Zhongtai Securities Co.Ltd(600918) , Zhongde securities and Ping An Securities, and three accounting firms such as Lianda, Huapu Tianjian and ShineWing.
Why are the three securities companies involved? It is reported that the above false statements mainly involve LETV’s IPO and listing related documents in 2010, annual reports from 2010 to 2016, non-public offering projects in 2016, etc. Zhongtai, Zhongde and Ping An Securities, as intermediaries, are jointly and severally liable for failure to exercise due diligence and fail to find LETV’s financial fraud.
A petition of the Beijing Financial court also means that another litigation case of ordinary representatives of securities disputes in China has ushered in key progress. On January 17, the 2022 system working meeting of China Securities Regulatory Commission clearly included “continuously strengthening the legal supply of capital market and protecting the legitimate rights and interests of investors” in the seven main tasks of capital market reform in 2022, including Solidly Promoting the normalization of representative litigation and continuously improving the insurance system.
2000 investors claimed 4.571 billion yuan
On the evening of January 17, Shanxi Securities Co.Ltd(002500) announced that its subsidiary Zhongde securities recently received a civil complaint served by the Beijing Financial court. 2000 plaintiffs such as Shanghai Junying asset management partnership (limited partnership) filed a civil lawsuit against LETV and other 21 defendants, asking LETV to compensate for the investment loss of 4.571 billion yuan caused by its false statement, and requiring the other 20 defendants to bear joint and several liability, including Zhongde securities.
On April 2, 2021, the CSRC issued the decision on administrative punishment, identified LETV’s violations, and imposed administrative punishment on LETV, Jia Yueting and other 14 natural persons.
In this lawsuit, 2000 LETV investors, as plaintiffs, put forward three reasons for litigation: first, LETV’s misrepresentation caused
If its rights and interests are damaged, LETV is required to bear the civil liability for misrepresentation infringement; Second, Jia Yueting and other 14 natural persons, as the persons responsible for false statements, bear joint and several liability for compensation; Third, three securities companies such as Sino German securities and three accounting firms bear joint and several liability for compensation for their failure to exercise due diligence and fail to find the financial fraud of LETV.
Based on this, the plaintiff claimed a total of 4.571 billion yuan from LETV (including investment balance loss, stamp duty, commission and interest); The other 20 defendants except LETV shall bear joint and several liability for compensation; All litigation costs of the case shall be borne by the defendant.
In view of the fact that the trial has not yet been held, Shanxi Securities Co.Ltd(002500) said that it is impossible to judge the impact on the company’s profits in the current period or after the period.
“gatekeeper” was beaten
Coincidentally, Zhongtai Securities Co.Ltd(600918) was also involved, and the company’s announcement on the same day disclosed more details of the case.
The announcement said that the above false statements mainly related to LETV’s IPO in 2010, its annual report from 2010 to 2016 and its non-public offering of shares in 2016. Three securities companies including Zhongtai Securities Co.Ltd(600918) and three accounting firms were jointly and severally liable for failing to exercise due diligence and failed to find the financial fraud of LETV.
Zhongtai Securities Co.Ltd(600918) said that because the above-mentioned cases have not been heard, the final amount involved is uncertain, and the company cannot judge the impact on the current or future profits. Meanwhile, the company will actively respond to the lawsuit according to law and timely perform the obligation of information disclosure on the progress of the case according to relevant regulations.
According to relevant data, LETV raised a total of 4.8 billion yuan in fixed growth in 2016. Sino German securities is the sponsor and joint lead underwriter, Zhongtai Securities Co.Ltd(600918) participated as the joint lead underwriter. Ping An Securities is implicated as LETV’s IPO sponsor. As of press time, Ping An Insurance (Group) Company Of China Ltd(601318) has not disclosed the announcement related to Ping An Securities, its subsidiary.
for 10 consecutive years, LETV was fined 480 million
Earlier, on April 30, 2019, LETV was investigated by the CSRC because the company and Jia Yueting were suspected of illegal information disclosure.
On April 12, 2021, the CSRC announced its punishment results. LETV and 14 responsible persons were fined 480 million yuan. The charges were fraud and fraudulent issuance of shares for ten consecutive years. The next day, the CSRC announced that it would ban Jia Yueting and Yang Lijie from entering the securities market for life.
The “five crimes” listed by the SFC are:
LETV made financial fraud for ten consecutive years from 2007 to 2016, and there were false records in the documents related to its application for initial public offering and listing (hereinafter referred to as IPO) and its annual reports from 2010 to 2016;
LETV fails to disclose related party transactions as required;
LETV did not disclose the provision of guarantees for LETV holdings and other companies;
LETV did not truthfully disclose that Jia Moufang and Jia Yueting fulfilled their loan commitments to listed companies;
LETV’s non-public offering of shares in 2016 constituted a fraudulent offering.
To sum up, LETV was fined a total of 240 million yuan, Jia Yueting was fined a total of 241 million yuan, and Yang Lijie and other 13 people were fined 600000 yuan to 30000 yuan respectively.
With huge fines, a number of intermediaries will inevitably be involved. In addition to the above three securities companies, the three accounting firms employed by LETV in the 10 years from 2007 to 2016, including Lianda, Huapu Tianjian and ShineWing, are also to blame.
solidly promote the normalization of representative litigation
On January 17, China Securities Regulatory Commission held a 2022 system work meeting. When reviewing the achievements of capital market reform in 2021, the meeting mentioned that the judicial system and mechanism of securities law enforcement were further improved, and a number of major cases with bad market impact were resolutely investigated and dealt with. The deterrent of “zero tolerance” was more obvious, and the market ecology was continuously optimized.
“Continuously strengthen the legal supply of the capital market and protect the legitimate rights and interests of investors” has also been written into the seven main tasks of the capital market reform in 2022, including Solidly Promoting the normalization of representative litigation and continuously improving the insurance system.
In May 2021, the first case of ordinary representative litigation of China’s securities disputes was settled. Due to the infringement of Securities Misrepresentation, Shanghai Feilo Acoustics Co.Ltd(600651) one of the “old eight shares” was sentenced to pay investment loss compensation to 315 shareholders, totaling more than 123 million yuan, with a per capita compensation of more than 390000 yuan. This case is the first judicial practice of ordinary representative litigation in securities disputes in China.
The above case of LETV’s misrepresentation liability dispute is also a typical ordinary representative litigation case of securities disputes, and it is also the first ordinary representative litigation accepted by Beijing Financial court. The successful handling of the Shanghai Feilo Acoustics Co.Ltd(600651) case provides a reproducible judgment sample for the further promotion of the securities class action system throughout the country.
About a month before the sentencing of the Shanghai Feilo Acoustics Co.Ltd(600651) case, China’s special representative litigation also ushered in the first judicial practice. On April 16, 2021, the CSRC announced that the CSI small and Medium Investors Service Center accepted the entrustment of more than 50 investors to initiate a special representative litigation on securities disputes against Kangmei pharmaceutical.
On November 12, the case was hammered down, and the first instance judgment of Guangzhou intermediate people’s court Kangmei Pharmaceutical Co.Ltd(600518) compensated 2.459 billion yuan for the loss of securities investors due to the infringement of false statements such as the annual report. Ma Xingtian, the former chairman and general manager of the company, five directly responsible personnel, Zhengzhong Zhujiang certified public accountants and directly responsible personnel shall bear all joint and several liabilities, 13 relevant responsible persons shall bear part of the joint and several liability according to the degree of fault.
