Former Everbright exec sues CSRC

A lawsuit brought by a former Everbright Securities executive against -China's securities regulator came before a court in Beijing on Thursday, and the outcome could affect investors' efforts to seek compensation, a lawyer told the Global Times.

Yang Jianbo, the former general manager of the trading unit at Everbright Securities, is suing the China Securities Regulatory Commission (CSRC) and hoping it will revoke its decision to ban him from the securities and futures industry for life. The ban was issued on August 31, 2013 after the regulator decided that Everbright had been involved in insider trading.

Yang's court hearing is open to the public and is being held at Beijing No.1 Intermediate People's Court, which accepted the lawsuit on February 18.

"To contest the punishment, Yang has to prove that the regulator's decision about insider trading was wrong," said Yang Zhaoquan, a lawyer at Beijing Vlaw Law Firm.

If the court decides that it was not a case of insider trading, the investors who suffered losses due to Everbright's actions will lose the legal basis to demand compensation, he told the Global Times on Thursday.

On August 16, an error by the -trading unit of Everbright Securities caused a sudden spike in the Shanghai Stock Exchange, which then fell back in the afternoon, causing losses for many investors. The company was blamed for not notifying investors of the mistake soon enough.

Several investors have reportedly filed lawsuits against the securities firm for compensation, but it could take a year or so before there is a -ruling, said Yang, the lawyer.

Yang Jianbo argued in court that -Everbright's move to hedge against risk after the trading error was a common practice, and Everbright did not use the hedging to make a profit, so it cannot be seen as insider trading.

He also said Everbright had reported the matter to the regulator in a timely manner, and that the CSRC was well aware of Everbright's hedging and did not try to stop it. Yang also said his -punishment was improper as he had acted according to the company's instructions.

Many netizens have left messages on Yang Jianbo's Weibo account saying that it was unfair for him to suffer a personal punishment, having just implemented the firm's decision.

But the CSRC decided the firm was guilty of insider trading during its hedging as it had not properly disclosed the original trading error. It fined Everbright 523.29 million yuan ($86 million), one of the heaviest punishments ever handed down by the regulator.

The regulator also fined Yang and three of his former colleagues at Everbright 600,000 yuan each and banned them for life from engaging in securities and futures trading. The other three have not taken legal action.

Efforts to contact Yang for comment were unsuccessful by press time.

Representatives of the CSRC said at the court hearing Thursday that the decision on insider trading was based on the law and regulations, adding that Everbright had misled investors by failing to make the trading error public information straight away.

"Everbright Securities as a listed company should have made the information public by itself before taking hedging measures," Zang Xiaoli, a lawyer at Beijing-based Yingke Law Firm, told the Global Times on Thursday.

Zang said Yang's punishment may be eased if he can prove that the regulator neglected its duty by not stopping Everbright from hedging against risk without prior public disclosure of the trading error.

However, even if the CSRC failed to stop the firm from taking the countermeasures, it is unlikely that the regulator explicitly instructed the firm to engage in hedging to cut its losses without disclosing information about the trading error to the public, Zang said.

The court hearing record showed that Yang's witness did not show up at the court, which weakened the credibi-lity of his testimony.

Yang's case against the CSRC will nevertheless lead to better regulation and serve as a warning against insider trading, Zang noted.