In the volatile securities market, misrepresentation is like a ticking time bomb that threatens investors’ financial security and undermines market integrity. This article analyses possible ways to claim compensation in disputes of securities misrepresentation, offering guidance for investors while diving deep into market regulation and investor protection.
Definition and liabilities
Securities misrepresentation is a major offence in the field of information disclosure. It is underpinned by disclosure obligors (including but not limited to listed companies, issuers and intermediaries) who intentionally or negligently make false statements or conceal crucial information during the issuance and trading of securities, misleading investors into making erroneous investment decisions. Identified forms of the practice include false records, misleading statements, significant omissions and improper disclosures.
Pursuant to the Securities Law and related judicial interpretations, disclosure obligors face administrative, criminal and civil liabilities for misrepresentation. Civil liability, which directly impacts investors’ financial interests, will be stressed in the following discussion.
Civil compensation requires those behind a misrepresentation to compensate investors for losses incurred from their reliance on false statements, including but not limited to investment losses, commissions, stamp duties and reasonable interest losses.
Partner, Member of the
Management Committee
Hengtai Law Offices
Tel: +86 138 1609 1953
E-mail:
zhouwenping@hengtai-law.com
Claims eligibility
Before seeking compensation, an investor must confirm their eligibility. This typically requires the investor to prove they are a proper investor within the affected scope of the misrepresentation.
Specifically, investors must demonstrate they purchased the relevant securities between the date of the misrepresentation and the date it was disclosed or corrected, and subsequently suffered losses by selling or continuing to hold the securities after the disclosure or correction date.
Evidence is crucial for a successful claim. Investors should gather all material related to the misrepresentation and their own losses, including but not limited to:
- Transaction records, which demonstrate the investor’s securities trading activities within the specified period;
- Announcements and reports such as announcements, annual reports and semi-annual reports that are issued by the disclosure obligor and contain the misrepresentation;
- Media coverage, including third-party reports and commentary on the misrepresentation; and
- Testimonies or evidence from other investors, which prove that the misrepresentation is widespread and pervasive.
Negotiation and mediation
Negotiation is much preferred for resolving disputes due to its low cost, high efficiency and quick relationship repair. Investors may hire professional lawyers or mediation agencies to represent them, leveraging expert negotiation skills to secure the best possible outcome. Maintaining an open and flexible attitude and adjusting strategies as needed also significantly aid in reaching a settlement agreement.
If negotiations fail, investors may consider mediation through a third-party agency. Mediation agencies are typically neutral, professional and efficient, helping both parties find a balance between competing interests and facilitating a swift resolution. Once a mediation agreement is reached and executed, investors will be saved from the complexities and uncertainties of litigation.
Regulatory intervention
Filing complaints or reports with the securities regulatory authorities is a crucial way for investors to protect their rights. Regulatory intervention can promptly address illegal activities and deter potential violators through public announcements and administrative penalties, thereby purifying the market environment.
When filing complaints or reports, investors should clearly identify the target, provide a factual basis and evidence, and submit relevant materials as required by regulatory authorities. On receiving a complaint or report, the regulatory body will conduct an investigation and take appropriate regulatory actions based on the findings.
Civil litigation
If negotiation, mediation and administrative complaints all fail to resolve an issue, investors may opt for civil litigation. Before filing a lawsuit, investors should gather comprehensive evidence, select the appropriate court for filing, and clearly define their claims and legal grounds to ensure the lawsuit is well targeted and effective.
During litigation, the court will review the case and issue a judgment based on the facts and legal principles. Investors should actively participate in court proceedings, air their opinions and present evidence. If the investors win, the court will order the defendant to pay the appropriate civil compensation. Once a judgment is final, investors can apply for enforcement to ensure the judgment is executed.
Diversified mechanism
As the securities market evolves and legal regulations improve, diversified dispute resolution mechanisms are gaining steam. In addition to traditional negotiation, mediation and litigation, new approaches have emerged for solving disputes of securities misrepresentation, such as exemplary judgments and online litigation-mediation co-ordination mechanisms. These approaches enhance dispute resolution efficiency, reduce the cost of investor protection, and promote market harmony and stability.
Conclusion
From the multiple ways to claim compensation in securities misrepresentation disputes, investors should choose the most suitable one, based on their specific circumstances.
Throughout the claim process, investors should remain rational and calm, proactively gather evidence and seek professional assistance to protect their rights. Meanwhile, the securities regulatory authorities must enhance oversight of information disclosure obligations and rigorously combat misrepresentation and other illegal activities to maintain fairness, justice and transparency in the securities market.
Through the combined efforts of investors, regulatory bodies and judicial institutions, a healthier and more stable securities market environment is expected to be created.
Zhou Wenping is a partner and member of the management committee at Hengtai Law Offices. He can be contacted by phone at +86 1381609 1953 and by email at zhouwenping@hengtai-law.com
