Shareholders are entitled to repayment of the funds paid for stocks and the interest banks would have paid for the funds during the period before the stocks were officially launched in the securities market, according to the 37-clause judicial interpretation.

It also stipulated that shareholders whose losses occurred in trading in the securities exchanges should be compensated with the actual losses incurred in the market, including the money lost in trading, related commissions and stamp taxes, as well as the interest banks would have paid.

"The compensation, as stipulated in the judicial interpretation, is reasonable redress for the losses of plaintiffs," commented Guo Feng, lawyer with the Beijing Guohao Law Firm in a telephone interview with China Daily. "(Compared with the level of compensation when an element of punishment is included) it has also greatly reduced the burden on defendants to an acceptable level."

Together with those involved in insider-trading and price rigging, trials of civil compensation cases caused by fraudulent information disclosure were suspended by the Supreme People's Court in September 2001.

That suspension on cases involving fake information was lifted last January when the court issued the first judicial interpretation setting out the basic guidelines for trying these cases. The second judicial interpretation, given yesterday, gave further clarification. It stated that those tasked with the release of information who falsified details, issued misleading statements, omitted necessary information or failed to disseminate information at the correct time and legally, will be guilty of the criminal act of making false information disclosures.

The legal document, which will come into effect next month, stipulates that those guilty of fraudulent information disclosure will be liable to pay compensation to shareholders, if those shareholders purchase related shares between the day that false information has been released and the day the fraud is disclosed or corrected, and who suffer economic losses keeping or selling the shares thereafter.

Since last January, courts across the nation have heard nearly 900 civil compensation cases involving fraudulent information disclosure of listed companies. Sources with the Supreme People's Court said that most of those cases are being heard in the courtrooms of six intermediate people's courts in Shanghai, Chengdu, Yinchuan, Jinan and Harbin, and are against the listed firms of Hongguang, Jiabao and Guangxia (Yinchuan) Industry Co.

To date, only two cases have been settled through court mediation in Chengdu and Shanghai.

Yesterday's judicial interpretation sets a precedent for the courts when trying civil compensation cases involving fraudulent information disclosure of listed companies.

"Most of the individual investors suffer from insufficient access to information and inexperience of the securities market and they are more likely to become victims when infringements occur," said Vice-President of the Supreme People's Court Li Guoguang, adding: "Only when the legitimate rights of the investor are effectively ensured can there be confidence in the capital market."

(China Daily January 10, 2003)