Friday, February 22, 2008
Supreme People's Court gives the green light (sort of) to shareholder suits for market manipulation and insider trading
As is well known at least among those of us who study Chinese corporate and securities law (a kind of "well known" that reminds me of a phrase I once read: "as popularized by Lacan"), the Supreme People's Court in a series of edicts in 2001, 2002, and 2003 cut back on shareholder rights to sue for violations of the Securities Law, essentially restricting them to suits for misleading disclosure where there had been a previous administrative or criminal sanction for the same violation. (Brief discussion here.) Last fall, however, I read an article in Caijing in which the author, Prof. Luo Peixin, stated that "according to the spirit of a recent judicial document," suits for insider trading and market manipulation would now be allowed. But Prof. Luo did not mention the name or any other details of the document to which he was referring.
I have now been able to track down the document and what it's all about. It seems that courts have now been instructed internally to accept suits for insider trading and market manipulation under the rules applicable to suits for misleading disclosures set forth in the SPC's 2003 document.
On May 30, 2007, SPC Vice President Xi Xiaoming (奚晓明) gave a speech [part 1|part 2] at a national court conference on civil adjudication in which he stated, "The revised Securities Law has provided more clearly for civil liability for tortious acts of insider trading and market manipulation. At present, with respect to civil litigation brought by investors against tortfeasors, the relevant People's Court should determine the acceptance of the case by reference to rules on predicate conditions set forth in the judicial interpretation on misleading disclosures, and determine jurisdiction over the case in accordance with the rules on jurisdiction." (修订后的证券法进一步明确规定了内幕交易和操纵市场侵权行为的民事责任。当前，对于投资人对侵权行为人提起的相关民事诉讼，有关人民法院应当参照虚假陈述司法解释前置程序的规定来确定案件的受理，并根据关于管辖的规定来确定案件的管辖。) He went on to say that the SPC would later issue a relevant judicial interpretation on the basis of experience gathered by courts in the course of adjudicating lawsuits on insider trading and market manipulation. This speech was circulated to lower courts as an internal document.
The speech was further discussed and analyzed by plaintiffs' securities lawyer Song Yixin (宋一欣) at a conference on November 13, 2008, and Song is soliciting plaintiffs to bring suit in a number of recent cases.
While I'm glad to see that the SPC has loosened its restrictions on shareholder suits - the original restriction seemed to have no basis in law, and was just for the convenience of the courts - it's disappointing that it has chosen to do so in such an opaque way. The word has now gotten out, of course, as it was meant to; so why not just issue a formal interpretation modifying the 2003 rule in the first place?