Accept Everbright Securities cases: SPC

The Supreme People's Court (SPC) announced that courts should accept civil compensation cases brought against Shanghai-listed Everbright Securities for a trading error in mid-August, a decision that might remove a major obstacle for small and medium investors who have been trying to sue the securities firm, lawyers said Sunday.

The SPC said in a notice released Friday that courts should accept the cases if plaintiffs have filed a lawsuit based on the administrative penalty decisions made by China Securities Regulatory Commission (CSRC) in late August.

The plaintiffs can file lawsuits if Everbright Securities' market violations have infringed their legal interests and incurred financial losses for them. The people's courts should accept suitors' separate civil action or joint civil action against the brokerage company.

The SPC notice also said that intermediate courts of the capital cities of provinces or regions and intermediate courts in municipalities like Beijing and Shanghai, will be designated as courts of first instance for cases against Everbright Securities.

Wei Fanghong, a lawyer specializing in company law from Jun -Chuang Law Firm in Beijing, told the Global Times Sunday that the SPC's notice can possibly clear a major hurdle for retail investors seeking compensation from Everbright Securities.

"Since the notice clearly stated that local courts should accept the cases, it will be able to facilitate the legal proceedings," he said. "Many local courts do not want to accept joint action suits against Everbright Securities because there are not many precedents of such cases and it is difficult to judge if the evidence provided by the plaintiffs is solid enough."

Zhao Zhengbin, founder of Beijing Haowei Law Firm, told the Global Times Sunday that the notice will significantly help the plaintiffs, because it designated the intermediate courts to be in charge of the cases.

"Now the different levels of courts cannot kick the ball around to try to avoid their responsibilities," Zhao said.

On August 16, Everbright Securities' flawed proprietary trading system mistakenly created and sent 26,082 purchase orders to the Shanghai Stock Exchange, resulting in transactions worth 7.72 billion yuan ($1.19 billion).

That pushed the benchmark Shanghai Composite Index up by 5.96 percent within three minutes, and caused many retail investors to buy assuming that the central government had announced some good news about the economy.

However, before the company admitted that the dramatic swing was caused by an error, it promptly sold part of its portfolio in exchange--traded funds and sold index futures contracts in an attempt to limit its loss.

The CSRC said on August 30 that Everbright Securities violated market rules by conducting insider trading, disclosing misleading information and going against internal control regulations of securities companies.

It also said that investors afflicted by the company's alleged wrongdoing can file civil lawsuits to seek compensation, and it would slap fines totaling 523 million yuan on the firm.

Wei said that once a court has ruled on an Everbright Securities compensation case, many other courts will be able to use that case as an example and be able to significantly increase their speed in dealing with other retail investors' requests.

Yan Yiming, a Shanghai-based lawyer, said in an e-mail sent to the Global Times in early October that courts were not dealing with Everbright Securities cases efficiently.

He urged the SPC to encourage local courts to speed up their proceedings.