Interpretation of the rules of the game -- to avoid Chinese enterprises listed USA encountered collective action

             Ding Xu A Zhen

 

                                               Preface

 

2010Years3Month3DayStandford School of law, USA securities class action lawsuit information exchange statistical conclusion,284In America listed Chinese enterprise, have25A class action lawsuit (encounteredClass action), which are Chinese life, ninth city, eutectic solar Chinese well-known enterprises. Collective action has become a major issue in the USA Chinese enterprises listed. A careful analysis of the collective action, reason is the same: American investors considered the Chinese enterprise information disclosure is not complete, make their investment suffered losses.

   USA the stock market is a temptation for China enterprise, but because the two countries of different cultural background, different legal concept, financial market regulation strategies of different, its securities market laws and regulations and China exist great difference. Know and understand these rules and principles is a compulsory course in American China enterprises listed. For this consideration, the author wrote this paper, analysis of regulators USA securities market and the registration system as well as the two American's main market, in the hope that the forthcoming in American listed enterprises to learn more about some of the rules of the game, to avoid in the America listed encountered collective action.[1]

 

                                         The text

 

     A,Government securities market America

    (a) American securities and Exchange Commission

    Government regulators USA securities market for the securities and Exchange Commission (AmericanU.S. Securities Exchange Commission,AbbreviationSEC).

1929Years10Month, the NYSE crash, large and small investors to borrow money to the bank and they almost complete loss of bankruptcy, the public trust in the market. Congress agreed at this time, in order to save the country's economy, we must restore the public's confidence to the capital market. In this historical background, the Congress1933By the "USA1933The Securities Act "(Securities Act of 1933), and in1934By "1934The Securities Exchange Act "(Securities Exchange Act of 1934), by the act creates America securities and exchange commission.

Whether it is "1934The Securities Exchange Act "orSECThe official web site, all clearSECThe main task is to establish credible information, trading rules clear, honest market, and restore public confidence in the financial markets. (Restore investor confidence in our capital market by providing investors and the markets with more reliable information and clear rules of honest dealing).[2]In the guidelines for the,SECThe establishment of the five department, appointed by the presidents of the five committee to guide the work. The five departments are corporate finance supervision department (Division of Corporate Finance), Department of trade market(Division of Trading and Markets), investment supervision department(Division of Investment Management)The executive departments(Division of Enforcement), risk, strategy, financial innovation department(Division of Risk, Strategy and Financial Innovation).

Five sectors of different powers, the need for a separate note is company finance regulatory and enforcement.

   (two) financial supervision department

Corporate finance supervision department responsible for reviewing filings.

The company to apply for IPO and listing is successful, will need toSECPersistent submit legal requirements document. The main responsibility is to help the corporate finance supervision departmentSECReview the company submitted documents, to ensure that the company's disclosure of important information (Disclosure of important information).[3]The documents to be submitted in the following"SECThe registration ".

In addition, the Department will also for the company to explainSECRules, and at the same time toSECProposed new rules that modify or supplement.

   (three) the executive departments

Executive departmentsSECThe only law enforcement departments.

Executive departments to assistSECThe law enforcement is recommendedSECTo investigate violations of securities law, suggestionSECCivil lawsuit, suggestionsSECAdministrative litigation, representativeSECCriminal proceedings.SECIllegal message sources is broad, is the main market monitoring, investors and other complaints, tipSECDepartment, self-discipline organization (Self-regulatory organizations) and the media.[4]

 

   Two,The main stock market American

Exchange, although not the government regulatory agencies, but as a self regulatory organization (Self-regulatory organization) also have the rights and obligations of the issuer and its supervision of the securities issued. Following a brief introduction America two main exchanges: New York-The pan European stock exchange and the Nasdaq stock exchange.

  (a)  New York-NYSE Euronext

New York Stock Exchange(New York Stock Exchange,NYSE)Is the world's largest stock exchange.

1792Years5Month17Day,24A securities broker in New York Wall Street68Extra under a buttonwood tree signed the Buttonwood Agreement "("Buttonwood Agreement), the New York Stock Exchange announced the birth of.2007Years, the New York stock exchange group and Euronext merger group, was established in New York-NYSE Euronext (NYSE Euronext);2008YearsNYSE-EuronextAmerican Stock Exchange (acquisitionAMEX), as is the world's largest, most negotiable securities exchange. Up to now, in theNYSE-EuronextListed securities traded more than8000Branch.[5]

NYSE-EuronextIn the United States and Europe were5Plate: the NYSE board (NYSE), NYSE Arca (NYSE-Arca), New York-The pan European Board (NYSE-Euronext), NYSE Alternext (NYSE-Alternext) and NYSE Amex (NYSE-Amex).

By2009Years5Month31Day,The NYSE statistics, in the China regional Corporation NYSE listed a total of70Home, includingNYSE55Home, NYSY-Alternext4Home,NYSE-Amex11Home.

We find from the contrastive analysis,NYSETend to be more abundant capital, profit, revenue, cash flow, stock issuance and public investment and higher number of company, it also has higher requirements on corporate governance structure.[6]Early in USA Chinese enterprises listed, basic only in the oil, Sinopec, China Life and other large enterprises have the strength inNYSEListed. But with the development of economy, enterprises are increasingly available in ChineseNYSEListed on the strength, only2010Years, as11Month there9Enterprises in theNYSESuccessful listing. Many private enterprises ember education, rural base from education and food industry.

  Two.  The Nasdaq Stock Exchange

The NASDAQOMXCompany under the Nasdaq was founded in1971Years, is a fully electronic trading, competitive arena for the emerging industries, self supervision, the global stock market. The NASDAQ is the nation is the world's largest electronic stock market.

The NASDAQ has a variety of market makers, investors in the Nasdaq market any a listing of stock transactions have taken an open competition to complete. This competition activities and capital provides activities make transactions active manner, widely and orderly market, the rapid implementation of the size of instruction for investors to buy and sell stocks have provided favorable conditions.

The Nasdaq stock market has three sections: the NASDAQ Global Select (NASDAQ Global SelectNASDAQ Global Market (,)NASDAQ Global MarketAnd the financial market (NASDAQ)NASDAQ Capital Market).

By2010Years8In MarchNASDAQListing of large China Zone Enterprise Co148Home. Compared with theNYSEFor.NSDAQMarket conditions are relatively low, compared to encourage new, innovative enterprises. Chinese medium-sized enterprises inNASDAQThe listing is a wise choice. At the same timeNASDAQAccording to the China enterprise wrote "listed: Chinese enterprises listed in the stock market America guide", worth a read the intention to America listed enterprises.[7]

 

   Three,American securities registration system

American securities issued by the registration system. The China Securities Regulatory Commission on Stock Audit the approval system, and USASECDifferent registration system, so this paper focus interpretationSECRegistration system. In theSECRegistration is the necessary condition of securities can be issued in USA.

  (a)  Issuing registration registration procedure and submit content

    1 SECRegistration

   1. Prior to the submission of the application stage of registration

 Registration prior to the submission of the application stage, the main studios people ready to registration application, prospectus and other query file material preparation. The issuer at this stage can be used as basic no behavior. According to the "America1933The Securities Act "article5Chapter (CThe provisions of paragraph), before submitting any offer, sales and an offer to purchase securities is prohibited (It is unlawful... To offer to sell or offer to buy).[8]But it is worth mentioning that "America1933The Securities Act "article2Chapter (A(paragraph)3) in definition of offer an offer to buy securities sales and the exclusion of preliminary consultations issuers and underwriters.[9]Therefore, at this stage, the issuer and underwriter can still preliminary consultations.

   2. Submit the registration application

 Ready, the issuer toSECSubmit registration (RegistrationRegistration Statement). To apply for registration in the main contents of "American1933The Securities Act "article7Table accessories and act accordinglyAThere is a detailed description of. Note that submitted applications for registration of the issuer, the main need managers, accountants, accountants and a majority of the board of directors such as signature.[10]

 In practice, toSECTo submit application for registration, the issuer is mainly completed by theSECWith a fixed format. According to different situations,SECThe official offer many versions of forms. China Company in America issuance of securities, we fill in and submit the form isS-1Table.[11]

 S-1The table is "America1933The Securities Act "under the table, therefore, fill in the table's purpose is to protect investors, in order to allow the issuer to fully disclose the legal requirements of the information. Several main contents of the table: the need for the prospectus information (Information requiring prospectus) and does not require prospectus information(information not requiring prospectus).[12]The former in the actual operation is mainly refers to the prospectus, prospectus is the company's disclosure of mass, including the issuance of securities issuance itself and all the information about, specifically including the general introduction to the basic situation of the company and the issuance of stocks, including issuing objective, the issuing conditions, near5Assets liabilities and its change, annual sales of the products and its change trend, earnings and dividends, shares of the total amount and structure, shareholder rights, product introduction, debt liquidation; Director, the composition of the board of directors of the company and the company main staff qualifications, reward; the controlling shareholder of the company; the company's past legal proceedings etc.. The latter mainly refers to the company's financial data, financial data, including balance sheet and income statement of financial statements (Financial statement); and shares of nominal price, term, expected income and so on, and the relationship between other capital and shares with the registered person between; management status report; experts, including accountants, engineers, valuers, the nuclear real part written consent or assessment report etc..[13]

 According to the "America1933The Securities Act "article5A (AThe provisions of paragraph), the issuer at this stage and after the waiting stage may not engage in any form of Securities Sales activities.[14]

   3. The waiting stage

 The application submitted is waiting for the stage. According to the "America1933The Securities Act "article8A (AThe provisions of paragraph), the waiting period for20Day.20Days later, such asSECWithout any notice to the objection, as registered success.SECA substantive review of materials submitted will not, will review the accuracy and completeness of the form. Wait for the period, the issuer can begin securities sales activities, but the sale of securities and the stock must be described in accord with the registration application.

 Here must pay attention to, say USA legal documents in the securities trading in fact both we usually said securities brokerage and proprietary trading, including the issuance of securities underwriting and distribution of such behavior, therefore, USA securities issuing and trading is almost synonymous with.[15]The issuer inSECAfter registration of securities issuance and trading can be.

   4. Registration after the entry into force of the stage

 Registration after the entry into force, reference data need not be updated immediately, but after that, the prospectus must assure continued accuracy. Once the plan changes, changes in income or expected to move any re consideration, need timely supplement the corresponding change of the prospectus. Change is not timely, investors have the right to request revocation has completed the sale of securities, and even put in a claim for damages.[16]

 In addition, in exchange listed company, every year need toSECSubmit "1934The Securities Exchange Act "12Under item20-FTable, annual report (i.e.Registration Statement Annual Report).

   5. Exemption -- the issuance of securities registration problem need to add

 The issuance of securities in principle must be registered, but there are some exceptions. On the part of securities and securities trading, the securities issued USA exemption, namely so-called (exempt securitiesExempted securities() and exempted transactionsExempted transactions).

   A.  Exempt securities

Exempt securities can exempt the key lies in the nature and the securities issuer itself. "American1933The Securities Act "article3A (A(paragraph)2) concentration can be exempted from registration provisions of the type of securities, including the issuance of government agencies and bank securities, short-term commercial paper, securities and non-profit organizations, housing credit association, the farmer cooperative organization and similar organizations of securities issued by the issuance of general transportation enterprises, some federal supervision and administration of the securities, according to the law of bankruptcy, the receiver or the trustee in court approval issued securities, insurance and annuity contract.

   B.  Exempted transactions

    Exempt transactions mainly in the "America1933The Securities Act "article3Tiao Hedi4Specified in the exemption, need special emphasis is:

   A)  Securities issued only for the exchange of, the3A (A(paragraph)9And ()10Item);

   B)  Small issue, article3A (B), andSECThe "ARegulations "and"BRegulations.

   C)  The basis for the establishment of American "small business investment act" of small enterprises to issue securities, the3A (CParagraph);

   D)  Any of the issuer, underwriters and dealers outside of transactions, trading and broker dealers are according to customer orders trading article4A (1()3()4Paragraph);

   E)  Private placement, the4A (2) on private offering exemption clause simply to carry out the provisions of the original text "The provision shall not apply to transaction by issuer not involving any public offering"(with the public offering independent issuer transaction, can be exempted from registration), afterSECThe "DRegulations, "rules"701"," rule144A"," rule1001"The private exemption a more detailed provisions.

   F)  Distribution behavior of underwriters, in American also known as the two issue (Second distribution).This behavior itself should be required to be registered, but taking into account the circulation and transfer of equity securities,SECOne after another "rule144"And" rule144A", giving its registered immunity.

  In addition to the aboveTheCircumstances, any securities and securities trading will need toSECRegistration.

    2 Exchange registered

 Any of the listing of the stock exchange, based on the market access conditions, need to submit the application documents to the exchange, registered in the bourse.[17]At the same time, the issuer need toSECSubmit the same file.

 1.    Registration is required to submit information

According to the "America1934The Securities Exchange Act "article12Provisions, submit to the stock exchange application includes: the issuer's situation (including organizational structure, financial structure, commercial properties, have been released in different categories of securities, status, rights and privileges of the term, and the term has been forthcoming, issued in the past three years, staff, board of directors securities underwriter, equity holdings10%Shareholders and their remuneration, remuneration above, the annual amount of more than20000Other personnel dollar, dividends and other benefit distribution plan, management and other service contracts, option, CPA audit for the first three years after the balance sheet and income statement, otherSECConsiders the need for financial statements); the Companies Ordinance, Chibe Akihonomo, the trust documents, such as underwriting contract internal documents; important contract is not concluded in the conventional in commercial activities (Material contract not made in the ordinary course of business), the contract will be in the application period for execution or in a two years before, and patent contract and related to patent right contract.

2.    The registration procedures for the entry into force

The different exchange according to their internal rules and access system to allow securities exchange registration and issuance, and this allows the comments submittedSEC.[18]Allow comments submittedSECAfter the30DaysSECDo not raise any objections orSECApproved the waiting period shorter, as in the exchange registration effect. The issuer can start trading on the exchange.

3.    The shares of the listing Corporation settlement

Listing Corporation in America settlement is carried out through the stock Clearing Corp. The company needs to register at the Clearing Corp (and trust company, if necessary) registered account settlement. America main stock Clearing Corp is the national securities Clearing Corp(NSCC)Depository institutions, mainly is the Depository Trust Company(DTC), it focuses on the New York exchange, American exchange,NASDAQDepository and clearing business of listed shares, market, business volume accounted for90%Above. There are also several small Clearing Corp, but they all have to do withNSCC,DTCTo realize network, customers only need an account can be completed between different market trading and settlement.

   3 Registration data untrue legal consequences

 If the issuer registration statement is false or not fully in the registration, to mislead the investors,SECHave the right to initiate the investigation. When theSECTo determine the issue of human behavior does exist, or any violation of relevant legal behavior does exist,SECHave the right to order the issuer correction.SECThis can be violations of civil lawsuit. In serious cases,SECHave the right to institute criminal proceedings.

 In violation of provisions of registered applications must be true and complete, civil litigation may arise in two ways: one isSECAs the plaintiff, bring a civil action directly; one is the investor as the plaintiff, filed a civil lawsuit. According to the "America1933The Securities Act "article11A (AThe provisions of paragraph), once the company in its registration registration statement untrue or incomplete, so as to mislead investors, investors may file a civil lawsuit.

 The subject of litigation to cover a broad range, including any sign the registration applications submitted personal; registration application, has the responsibility for the content, at the same time the job of a partner or director; director or performing similar duties; accountants, lawyers, engineers, surveyors and other professional responsibility views of the staff; securities underwriter.[19]

 On civil liability, need to emphasize a point, an application for the registration of false or significant loss in American securities registration, investors may be filed a class action lawsuit.[20]A class action lawsuit costs at least 10 million yuan level, but also involves a lot of energy, once lost enterprises will face huge economic losses. China Company have encountered many such cases in USA. China Company continue to think in USA development must pay attention to, make honest in all public documents. Any move, in business regardless of size, should it is whether to open, to consult experts or direct consultationSECAnd exchange.

   4 Remind Chinese Enterprises -- most points we should pay attention to the information disclosure

  1 The issuance of securities is the law gives the right issuer

The issuance of securities registered under a rights issuer inherent, without special government approval or authorization. The issuer the statutory time limit after submitting an application, the securities regulatory agency if not put forward different views, its registration is automatically entered into force, the issuer may also start offering. As "1933Years American Securities Act "article8A (AThe provisions of paragraph). The issuance of securities is a universal right, this right so that the issuer has received market rights and opportunities. But hidden in the rights and obligations under is the legal information disclosure duty.

  2"Information disclosure principle"

"Information disclosure principle" can also be referred to as the "openness" is the essence American securities registration system. Based on the registration system is public information, will be all about the issuer and its information and data issuance of securities is completely open to the public by forcing the issuer, there shall be no false, misleading or major omissions, giving investors the opportunity to complete the judgment and choice. This is America"Caveat Emptor("Let the buyer be aware and careful: the buyer to be careful) principle of market performance.

Issue is actually the only obligation is to ensure that the information true, after the open,Unless the sequential presentation of false, otherwise the issuer does not have any other legal responsibility for investors. This is also why once the issuer disclosure of false information, causes the corresponding legal responsibility very seriously.

USA law is not intended to prevent investors make the worst investment decision, complete information just tried to the legal way to obtain relevant securities, on the basis of investors to evaluate, which made his decision. This principle is solely for the purpose of preventing the issuer misleading, confusing investors, which made completely wrong decision.

This principle is easy to understand, but for the goodness of the issuer, the point is what kind of information or data required to disclose. The JA solar company collective lawsuit, the plaintiff Jing'ao solar made major false statement on its financial condition and results of operations and misleading reports, because it did not disclose the purchase in the aftermath of the Affiliated Companies1Billion dollar bill. The9 encountered collective lawsuit accused 9 cities did not disclose the renewal "World of Warcraft" agency contract situation.

Long habit, to China enterprises, some items will be considered commercial secrets which hide in certain specific situations. If not a commercial secret, many times, in order to prevent the market panic, China enterprise also tend to hide. But for America market, is must tell investors. Because the issuer at this time is in the use of investor capital operation, so is the need for a service for investors. Tell the status of investors is the first step to start the service, because the situation is conducive to tell them, in their basic information known integrity, and make your own decision. Chinese and American opposite behavior habits and opinions easily America "vulture" lawyers use, become the inciting cause filed a class action lawsuit.

To solve this problem is not a short duration of time, companies need to pay attention to deal with the relationship between the USA law firm in the market, at the same time, in accordance with the audit system and the legal institution USA own system and operation mode. In addition, improve their internal processes and control is necessary. Any matter to the lawyer, auditor's answer is also reasonable to eliminate a dangerous way.

 

                                      Conclusion

 China Company willing to USA listed is because there exists the temptation. As rights and responsibilities are equal, the temptation and the risk is equal. Company to American listed, in addition to rejoice in not the same as the impact of the market, should also be vigilant against different institutional and cultural problems.

 I sincerely hope that this paper can make the America listed companies more understand the rules, avoid the collective action in the America, sincerely wish Chinese America enterprises listed on the road more walk more wide.

 

 

(this article was written in November 12, 2010)