Courts to take on cases linked to stock trading

PUBLISHED : Tuesday, 04 September, 2007, 12:00am
UPDATED : Tuesday, 04 September, 2007, 12:00am

Mainland courts are expected soon to accept civil cases involving stock price manipulation and insider trading in a move to give more protection to retail investors.

'We have yet to receive an official edict from the supreme court to go ahead with the hearings, but we are ready to accept those cases now,' a judge at the Shanghai No2 Intermediate People's Court said yesterday.

The Supreme People's Court is likely to issue a decree soon, allowing lower courts to hear cases related to insider trading and price rigging, Caijing magazine reported on its website, citing an unidentified official of the court.

The decree will broaden the scope for retail investors seeking compensation, as courts now hear cases involving false information disclosure by listed companies.

'It is a sign that the central government is taking a significant step to better regulate the market,' said Gong Zhenhua, a partner with Shanghai-based Ronghe Law Firm.

'A series of notorious stock fraud cases have tarnished the reputation of the country's capital market and the officials hope to send a wake-up call to those who are likely to commit similar crimes.'

The mainland markets have been surging since last year, stirring concerns over a repeat of the situation earlier this decade when they were hit by a series of scandals amid rampant trading and runaway investment.

The China Securities Regulatory Commission has been cleaning up the markets, including imposing penalties on Zhejiang Hangxiao Steel Structure and its management in May for breaches of securities laws and regulations.

That came just a month after it increased action to curb potential market manipulation and launched probes into several mutual fund managers who had allegedly helped relatives profit from insider trading.

The CSRC in July handed out its third batch of punishments this year, blacklisting 52 managers and fining 11 companies a total of 5.2 million yuan for an array of abuses including releasing bogus statements, false auditing, insider trading and failing to disclose information.

Restrictions on court hearings against stock market misconduct were laid out in September 2001 when the supreme court issued a circular to lower-level courts requiring them not to accept cases related to price rigging and insider trading.

The highest court explained at the time that judges lacked knowledge about stock markets to take up such responsibility and the laws and regulations governing stock fraud cases needed to be fine-tuned.

The restrictions were relaxed in January 2003 when the courts were allowed to accept lawsuits involving the disclosure of false corporate information.

Two months later, thousands of investors sued Guangxia (Yinchuan) Industry, a Shenzhen-listed biochemical firm, for compensation as its stock price plunged after the company was exposed as having allegedly inflated earnings in 1999 and 2000.