First case! Deceptive accumulation, court rules! False statements, compensate investors for losses!

Recently, the Shanghai Financial Court released its top 10 cases of 2025, one of which involves an上市 company’s senior executives allegedly making “convenient-sounding” share purchases. The court found that this constitutes joint infringement in securities false statement liability, and they must compensate investors for their losses.

The Shanghai Financial Court said that this case is the first national securities infringement dispute case in which a listed company’s senior executives failed to fulfill a public share-purchase commitment. Through adjudicating this case, the court clarified the relationship between the public commitment mechanism under the Securities Law and the information disclosure system; established the standards for determining the legal nature of failures to fulfill public commitments; clarified the constitutive elements and factors for identifying failures to fulfill public commitments as a basis for liability for securities false statements; and activated the civil compensation provision for public commitments under the Securities Law, filling the gap in judicial practice in accurately applying China’s capital-market public commitment system with distinctive characteristics.

The Shanghai Financial Court stated that the implementation of the civil compensation system for public commitments not only effectively protects the lawful rights and interests of small and medium investors, but also strongly punishes “convenient-sounding” and “fraudulent” commitment behaviors in the market, which helps deter listed companies and “key few” insiders. It is of milestone significance for boosting investor confidence and promoting the construction of a trustworthy system in the capital market, and will help form a favorable ecosystem of “rule-of-law economy” and “credit economy.”

“Convenient-sounding” share purchases

On June 14, 2021 (a non-trading day), the Shenzhen Stock Exchange-listed company Jinmou Tai released an announcement titled “Announcement on the Share Purchase Plan by the Company’s President and the General Manager of Its Controlling Subsidiary.” The announcement stated that Jinmou Tai received a notice from Yuanmou, the company’s director and president, and Luomou, the director and general manager of Shanghai Jinmou New Materials Technology Co., Ltd., the company’s controlling subsidiary. The plan was to purchase shares of the company within six months from the date of disclosure of this announcement. The amounts to be purchased were each not less than RMB 150 million, totaling not less than RMB 300 million.

On the evening of November 26, 2021, Jinmou Tai issued an announcement on the extension of the share purchase plan after-hours. Yuanmou and Luomou applied to extend the deadline for fulfilling this share purchase plan to June 15, 2022. The main reasons for the extension were: during the information-disclosure sensitive period, it was not possible to purchase the company’s shares, which greatly shortened the effective time during which the plan could be implemented; because the planned amount to be purchased was large, the capital-raising was not yet completed, etc.

On the evening of September 30, 2022, after-hours, Jinmou Tai released an announcement titled “Announcement on the Expiration of the Share Purchase Plan Term for the Company’s President and the Newly Appointed General Manager of the Controlling Subsidiary and on the Implementation Results.” The announcement stated that during the second extension period of the share purchase plan, Yuanmou and Luomou failed to complete the share purchase plan.

On October 20, 2022, the Shanghai Securities Regulatory Bureau issued two decisions: “Decision on Taking a Written Warning Measures Against Yuanmou” and “Decision on Taking a Written Warning Measures Against Luomou.” The bureau found as follows: after the share-purchase commitment period expired, the defendants Yuanmou and Luomou had not purchased shares of the company, which was inconsistent with the prior share purchase plan. Therefore, administrative regulatory measures in the form of issuing written warnings were taken against Yuanmou and Luomou.

On December 21, 2022, the Shenzhen Stock Exchange issued a decision titled “Decision on Publicly Reprimanding Yuanmou and Luomou.” The decision found as follows: Yuanmou and Luomou still had not carried out the share purchases even after the second extended share purchase plan had expired, and the market impact was extremely bad. Therefore, the Shenzhen Stock Exchange imposed the punishment of publicly reprimanding Yuanmou and Luomou.

Investors’ request for compensation of losses

Investors LiuMoumou and ZhengMoumou filed a lawsuit, arguing that Jinmou Tai’s announcement stated that its executives Yuanmou and Luomou committed to purchasing a total of RMB 300 million worth of shares. Based on their reliance on that disclosed information, LiuMoumou and ZhengMoumou made investments in the company’s stock. The acts of Jinmou Tai and the personnel responsible for it who failed to fulfill the share-purchase commitment constitute securities false statement acts, and they should bear liability for compensating investors’ losses. Therefore, LiuMoumou requested the court to order the three defendants to jointly compensate his investment loss of RMB 506.1k and corresponding interest loss. ZhengMoumou requested the court to order the three defendants to jointly compensate his investment loss of RMB 277.4k and the corresponding loss from the misuse of funds.

On April 25, 2025, the Shanghai Financial Court issued a civil judgment (2023) Hu 74 Minchu No. 800. Yuanmou and Luomou jointly compensated investor LiuMoumou for the investment differential loss of RMB 505.5k, commission loss of RMB 151.64, and stamp duty loss of RMB 505.47, totaling RMB 506.1k; Yuanmou and Luomou jointly compensated investor ZhengMoumou for the investment differential loss of RMB 277k, commission loss of RMB 83.11, and stamp duty loss of RMB 277.05, totaling RMB 277.4k; and it dismissed the remaining litigation requests of LiuMoumou and ZhengMoumou. After the judgment was announced, none of the parties appealed, and the judgment has taken legal effect.

Constituting a securities false statement tort

The Shanghai Financial Court held that the focus of dispute in this case lies in whether the public share-purchase commitment in question constitutes a securities false statement tort, and if it does, how the responsibility of the three defendants should be determined.

The Shanghai Financial Court stated that, specifically regarding the public share-purchase commitment at issue in this case, given that the two plaintiffs clearly claimed that the defendants’ conduct constitutes securities false statement conduct, a comprehensive analysis and determination should be made from the perspective of the elements required for securities false statement liability, taking into account factors such as: the behavioral characteristics of share purchases on the securities trading market; the nature of the conduct involving the public share-purchase commitment; the defendants’ preparedness for performance when making the share-purchase commitment; the reasons for the two extensions; the reasons for failing to fulfill the commitment; whether there are any grounds for exemption from liability, etc.

First, Yuanmou and Luomou, without making capital preparations or having any substantive capital-raising arrangement, recklessly issued the public share-purchase commitment. A series of subsequent actions by Yuanmou and Luomou also can confirm that this share-purchase commitment was not executable from the outset. Therefore, Yuanmou and Luomou’s public commitment to purchase Jinmou Tai’s shares constitutes a false statement.

Second, from the perspectives of the share-purchase party, the amount committed to be purchased, and market influence, the disclosure by Yuanmou and Luomou of information regarding their public share-purchase commitment seriously misled the securities market and investors’ expectations. The false statement conduct has materiality.

Finally, in terms of the liable parties, the special feature of the false statement conduct in question is that the public commitment makers, Yuanmou and Luomou, are information disclosure obligors, not Jinmou Tai. According to Article 84, Paragraph 2 of the Securities Law, the entity that makes a public commitment is the statutory information disclosure obligor. Since the information disclosure obligor outside the listed company cannot make disclosures on its own, disclosure must be carried out through the listed company issuing information to the outside. Therefore, in the false statement conduct at issue, the information on the public share-purchase commitment was disclosed through Jinmou Tai.

Objectively, where the public commitment maker provides information without obvious defects, the listed company also cannot refuse to publish an announcement disclosing such information, and it should ensure that the information it publishes is consistent with the information provided by the information disclosure obligor. Therefore, the information disclosure conduct in this case should not be treated as Jinmou Tai’s own information disclosure conduct, and Jinmou Tai should not bear civil compensation liability for the false statement conduct in question.

The Shanghai Financial Court said that, in summary, Yuanmou and Luomou, without necessary preparation, recklessly made a public share purchase commitment to the securities market that was not executable, and not only failed to provide risk warnings; instead, they repeatedly conveyed false and misleading information, seriously misleading the market and investors. This constitutes a joint infringement involving securities false statements, and they should jointly bear civil compensation liability for investors’ losses.

Layout: Wang Yunpeng

Proofreading: Pan Da