"When calculating the losses of the investors, judges should be able to distinguish between the fluctuation of stock prices caused by the dissemination of fraudulent information and that caused by other elements," said Li Guoguang.

Li's remarks, quoted by Xinhua at a recent national conference, came before the long-awaited promulgation of a new Supreme People's Court judicial interpretation that will set down rules concerning compensation in cases of fraud related to stock information.

The judicial interpretation is expected to come out by the year's end, though sources with the Supreme People's Court declined to give the exact date it will be made public.

Chinese courts were faced with an upsurge of cases last year in which stockholders sued listed companies they believed had disseminated false information. The shareholders were seeking compensation.

The Supreme People's Court ordered a halt to such cases in September 2001 but reversed its decision in January this year, saying that investors can take companies to court if the China Securities Regulatory Commission (CSRC) rules that the companies have falsified information and if the CSRC has already passed down punishment.

Statistics from the Supreme People's Court indicate that so far Chinese courts have accepted nearly 900 such cases.

According to Li, companies that release fraudulent information can be ordered to pay compensation if the investors purchased shares between the day that the false information was released and the day the fraud was disclosed or corrected, and if they suffered economic losses in keeping or selling the shares.

Li added that investors who operate with knowledge of the information disclosure fraud or suffer losses because of the normal risks of the securities market are not entitled to compensation from the listed companies.

The amount of compensation should be based on the actual losses investors have suffered due to the fraud, Li stressed.

Last month in the Chengdu Intermediate People's Court in Southwest China's Sichuan Province, 11 investors in the Shanghai-listed firm Hongguang were awarded 224,000 yuan (US$27,000) in compensation for the false information released by the company through mediation. This is the first time that investors have received compensation for losses stemming from false information.

(China Daily December 13, 2002)