Summary of securities crime series articles -- Analysis of criminal risk and compliance path of the whole process of securities

Editor's note

Summary: With the continuous progress of the construction of the rule of law in China's financial field and the continuous development of the securities market, the regulation of securities crimes is also gradually improving:

Blank stage: In 1979, the Criminal Law still had no provisions on securities crimes. With the vigorous development of the socialist market economy, after the establishment of the Shanghai and Shenzhen Stock Exchanges in the early 1990s, the market appeared chaotic situations such as insider trading and stock price manipulation. The Interim Measures for the Prohibition of Securities Fraud issued by the Securities Commission of The State Council provided for administrative penalties for securities issuance, insider trading, market manipulation, customer fraud, false statements and other acts for the first time. At that time, illegal operations in the capital market lacked criminal regulation means and could only be regulated by administrative penalties.

Initial stage: After the Asian financial crisis, the prevention of financial risks became the focus of national economic governance, and the gap in criminal legislation on securities crimes was filled at this stage. In 1997, before the Securities Law was promulgated, the Criminal Law took the lead in adding the crime of insider trading, the crime of fabricating and spreading false information, the crime of inducing others to buy and sell securities, and the crime of manipulating securities trading prices. The criminal system of cracking down on securities crimes has been preliminarily established. Later, through the criminal law amendment in 1999, the futures crime was included in the securities crime clause, and the integrated regulation of securities and futures crime was realized.

Charge elaboration stage: Before and after the global financial crisis in 2008, Wanfu Shengke, Green Land and other financial fraud cases occurred frequently, and small and medium-sized investors suffered heavy losses, which exposed the problem of insufficient accountability of the original charge system for controlling shareholders and intermediaries. Amendments (VI) to the Criminal Law in 2006 and (VII) to the Criminal Law in 2009 adjusted the above-mentioned related charges.

Heavy punishment and the convergence stage with the registration system: With the promulgation of the new Securities Law in 2020, the capital market has entered the era of registration system with information disclosure as the core, and the relevant criminal penalties have also been increased accordingly in order to protect and converge the supporting system of the registration system. The 2021 Amendment to the Criminal Law (XI) increases the range of prison terms and fines (for example, the maximum sentence of the crime of fraudulent issuance is increased from 5 years to more than 5 years, and the fine is increased from 1-5% to 20-100% of the raised funds), and expands the scope of accountability (clarifying the criminal responsibility of the controlling shareholder and the actual controller for organizing the crime). And punish the intermediary dereliction of duty (sponsors, accountants, lawyers intentionally provide false documents, especially serious cases can be sentenced to 5-10 years).

In 2024, The State Council issued Several Opinions on Strengthening Supervision to Prevent Risks and Promote High-quality Development of the Capital Market (the "nine national guidelines"), and the four departments of the Supreme People's Court, the Supreme People's Procuratorate, the Ministry of Public Security and the Securities Regulatory Commission jointly issued guidance, all emphasizing the strict, swift and heavy crackdown on securities crimes.

Securities crime is obviously different from other kinds of crime. First of all, in the process of handling securities crimes, the administrative department usually takes the lead in intervening and then the public security organs transfer the case files of the CSRC as part of the evidence for examination and prosecution, which derivates that such cases mainly face complex problems of connecting the execution. Secondly, there are many criminal links in securities, and each link involves different subjects. Besides issuers, there are intermediaries in the issuance link, and the trading link also involves the criminal risk of the stock exchange as the insider information informant. In addition to the differences between the master and slave in the same crime, different subjects also involve different charges, and the compliance focus of each subject is different. Thirdly, securities related laws, regulations and normative documents are numerous and updated quickly, and how to coordinate the relationship between provisions at different levels requires professional judgment. In addition, securities crimes usually involve listed companies. Due to the large size of listed companies, the incubation period of corporate criminal risk is long, and once it occurs, it will cause a series of chain reactions. Therefore, listed companies need to establish a sound compliance system to avoid being investigated for criminal responsibility. In this context, this series of articles intends to conduct a detailed analysis of the criminal risks that may occur in all aspects of securities from issuance, listing to trading, so as to provide effective guidance for the behavior of various entities at the practical level.

For ease of understanding, the following chart shows the criminal risks that may be involved in the various stages of listing.

With this in mind, our list of articles in this series is summarized as follows:

Article catalog

01. Securities issuance

Securities Issuance Part 1: Legal Boundary -- How Can Enterprises and Intermediaries avoid punishment

Securities issuance Part II: Defense Strategy -- Key points and evidence breakthrough

Securities issuance Part 3: Practical interpretation -- criminal risk change and sentencing trend

02. Securities listing

Securities listing Part (1) : Case warning -- the logic of criminal responsibility for financial fraud of listed companies

Securities listing Part (2) : Legal red line -- Analysis of common crimes in enterprises

Securities listing Part (3) : Prevention Strategy -- criminal risk prevention in the listing process

03. Securities Trading

Securities trading part (1) : Legal interpretation - full analysis of criminal risk

Securities Trading Part 2: Compliance Guidelines - How Can Companies avoid legal Risks

Securities trading Part 3: Defense Practice -- Key points and successful strategies

04. Secondary market

Secondary market Part (1) : Risk Tips -- Research on criminal issues related to OTC capital allocation

Secondary market Part (2) : Defense Practice -- defense strategy of off-exchange allocation business

Secondary market Part (3) : Operation mechanism and operational risk of complex financial products