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Circular of the Supreme People's Court, Supreme People's Procuratorate, Ministry of Public Security and China Securities Regulatory Commission on the Relevant Issues on the Suppression of Illegal Securities Activities
Zhen Jian Hui [2008] No. 1

The higher people's courts, people's procuratorates and departments (or bureaus) of public security of all provinces, autonomous regions and municipalities directly under the Central Government, the courts-martial of the People's Liberation Army, the military procuratorates, the Production and Construction Corps Branch of the Higher People's Court of Xinjiang Uigur Autonomous Region, the people's procuratorates and bureaus of public security of Xinjiang Production and Construction Corps, and the regulatory offices of China Securities Regulatory Commission in all provinces, autonomous regions, municipalities directly under the Central Government and municipalities under the separate state planning:

After the Circular of the General Office of the State Council on the Relevant Issues on the Strict Crackdown on Unlawful Issuance of Stocks and Unlawful Operation of Securities Business (No. 99 [2006] of the General Office of the State Council, the "Document No.99 of the State Council") and the Official Reply of the State Council on Agreeing to Set up the Working System of Coordination Panel for the Suppression of Unlawful Securities Activities (No. 14 [2007] of the State Council) were promulgated, all members of the Coordination Panel for the Suppression of unlawful Securities Activities (the "Coordination Panel") and the local people's governments have attached great importance to it, made meticulous arrangements, investigated a batch of major and serious cases, and curb the trend of rampancy of unlawful securities activities in advance, the number of new happenings of various unlawful securities activities has evidently decreased, obvious results have been accomplished in the crackdown on unlawful securities activities, and a large portion of cases have entered the judicial procedures. But, in the case-handling process, the relevant units have confronted some issues on the ambiguous division of work and cooperation and boundaries in policy and law. Thus, the Coordination Panel specially convoked a meeting to discuss these issues., The relevant issues on the crackdown on unlawful securities activities are hereby informed to you as follows in the spirit of the meeting of the Coordination Panel:

I.
Unifying ideas and attaching great importance to coping with unlawful securities cases.

The illegal securities activities are a typical kind of activities of legal violations and crimes covering the mass, severely destroy the normal economic and financial order, and ruin the social harmony and stability. The illegal securities activities undertake the following characteristics in view of some cases handled recently: (1) Pursuant to the Rules on the Standards of Prosecution of Economic Crime Cases (No. 11 [2001] of the Ministry of Public Security)promulgated by the Supreme People's Procuratorate and Ministry of Public Security, the great majority of unlawful securities activities involve crimes. (2) The unlawful securities activities go on being innovated in manners, with great hiddenness, deceptiveness and imitativeness. (3) The unlawful securities cases involve broad areas, large amounts and a great number of people, the assets are easily transferred, the evidence is easily ruined, the suspects can easily flee, and there is great difficulty in coping with cases. (4) Many cases involve the foreign capital markets, and the coping with of such cases involves strong policy considerations and needs a high level of specialty. (5) Most investors are retirees, laid-off workers and other people in hardship with a poor sustainability, and mass events are very easily caused. All relevant authorities shall unify ideas, attach great importance to it, fully comprehend the seriousness and dangers of such activities of legal violations and crimes, enhance the sense of political responsibility, closely divide work and cooperate, elevate the work efficiency, timely investigate a batch of major and serious cases, keep the authority of laws and administrative regulations, guard the social fairness and justice, and safeguard the legal rights and interests of the investors.

II.
Clarifying legal and policy boundaries and legally cracking down on unlawful securities activities
1.
Determination of the nature of transfer of stocks by a company or its shareholders to the members of general public without approval. Article 10(3) of the Securities Law offers that: "The non-public offering of securities shall not be in the manner of advertisement, public canvass or public offering in a disguised way." The Document No. 99 of the State Council offers that: "Any shareholder of a company shall be forbidden from transferring stocks to the members of general public in a public manner on its own or through an authorized person. Stocks are not reported to China Securities Regulatory Commission for approval, the number of shareholders of the company shall not surpass 200 in total after the transfer if stocks are transferred to specific objects,"The company or shareholder thereof shall be pursued for liability for issuance of stocks without approval if a company or its shareholder thereof transfers stocks to the members of general public without approval in violation of the above provisions. The company shall assume the responsibility jointly with the shareholder thereof if a company and shareholder thereof conspire to commit the above violation,
2.
Liability for issuance of securities without approval. For the issuance of securities without being approved in accordance with law and involving a crime, the offender shall be pursued for criminal liability on charge of the crime of issuance of stocks or corporate or enterprise bonds without approvalin light of Article 179 of the Criminal Law. For the illegal securities activities without being approved in accordance with law, in the disguise of issuance of securities and involving a crime, the offender shall be pursued for criminal liability on charge of the crime of illegal absorption of savings from the general public or crime of fraudulent fundraising, pursuant to Articles 176 and 192 of the Criminal Law. The administrative punishment shall be imposed on the violator pursuant to the provisions of the Securities Law and relevant laws if the violation does not constitute a crime.
3.
Liability for unlawful operation of securities business. The operation of securities business by any entity or individual shall be subject to the approval of China Securities Regulatory Commission. The operation of securities business shall be unlawful and removed without such an approval,; the offender shall be pursued for criminal obligation on charge of the crime of unlawful business operation if a crime is involved, pursuant to Article 225 of the Criminal Law. For the unlawful trading of stocks in an unlisted company by an intermediary as an agent, involving a crime, the intermediary shall be pursued for criminal obligation on charge of the crime of illegal business operation, pursuant to Article 225 of the Criminal Law; the unlisted company shall be pursued for criminal liability on charge of the crime of issuance of stocks without approval, pursuant to Article 179 of the Criminal Law if the above unlisted company involves the issuance of stocks without approval, constituting a crime. They shall be pursued for criminal liability on charge of the crime of issuance of stocks without approval as accomplice if an unlisted company and intermediary conspire to issue stocks without approval, constituting a crime. The administrative punishment shall be imposed on the violator pursuant to the provisions of the Securities Law and relevant laws if the violation does not constitute a crime,.
4.
Determination of the nature of illegal securities activities. Whether the illegal securities activities involve a crime shall be determined by the public security or judicial authority., the competent administrative authority shall produce its opinions on determination if the public security or judicial authority deems it necessary for a relevant competent administrative authority to determine the nature. The Coordination Panel shall organize the relevant units to study the solution at the request of the case-coping with authority if coordination is needed for a complicated case or dissenting opinions.
5.
Connection of the provisions on issuance of stocks without approval and illegal operation of securities business of the Securities Law prior to and after revision. The provisions on issuance of stocks without approval and illegal operation of securities business of the Securities Law before and after revision are consistent and connected, and, therefore, the offenders issuing stocks without approval or illegally operating securities business prior to the revised Securities Law put into effect shall be pursued for relevant liability.
6.
Remedies available to victims of illegal securities activities. Pursuant to the provisions of the Circular of the General Office of the State Council on Forwarding the Scheme of China Securities Regulatory Commission on the Clear-up of OTC Stock Trading (No. 10 [1998] of the General Office of the State Council) promulgated on March 25, 1998, the Supreme People's Court promulgated the Circular on Suspending the Trial and Execution of Cases Involving Economic Disputes over Illegal OTC Stock Trading on December 4, 1998, directed at helping the country in settling problems arising in the STAQ and Net trading systems and not planed for disputes arising from the current illegal securities activities. The victims shall recover losses through the criminal procedures for recovery of illegally acquired property at the public security and judicial authorities if the illegal securities activities constitute a crime;, The parties meeting the conditions for action as set out in the Civil Procedure Law may request compensations through the civil procedures if the illegal securities activities are only general legal violations and do not constitute a crime.
III.
Enhancing cooperation and assistance and advancing the case-handling efficiency

From investigation and taking of evidence to case closure, the illegal securities cases involving crimes mainly concern four authorities: the securities regulatory authority, public security authority, procuratorate and court. The above four authorities in most localities can accomplish both division of work and cooperation and cope with cases smoothly in view of working practice, but in some localities some cases are excessively delayed, passing bucket to each other exists, and the case-coping with circle is considerably long. On the reasons, some have a loose working attitude, some have an inadequate comprehending, and some are hindered in coordination and communication. The work meeting of the Coordination Panel thinks highly about the existing problems, and has made the general deployment in respect of division of work and cooperation among the relevant authorities.

The securities regulatory system shall be prompt, work together harmoniously and conduct all localities to carry out the promulgated opinions on the implementation of the Document No. 99 of the State Council, and tangibly implement the long effect mechanism for crackdown on unlawful securities activities; in accordance with the requirements of the judicial authorities, shall timely bring forth the opinions on determination of the nature of illegal securities cases; shall innovate the case-coping with mode, emphasize the joint law enforcement with other administrative law enforcement authorities under the leadership of the local government, and elevate the rapid response capability; in accordance with the work needs, may organize the related personnel of the local public security, procuratorial and judicial authorities to attend business training or consult about cases; and shall enhance the tracking and study of overseas capital markets.

The public security authorities shall timely file and investigate unlawful securities cases involving crimes in time, and well connect their work with that of the securities regulatory, industrial and commercial and other authorities; the superior public security authorities shall enhance the coordination, guidance and prompt of handing of cases, and elevate the case-coping with efficiency; intensify the cooperation with the procuratoratesand courts, timely exchange information and publish notices, and improve the momentum of investigation and coping with of major and severe cases.

The procuratorial authorities shall effectively run in the approval of arrest, prosecution and oversight of litigation in such cases; and enhance the communication and contact with the relevant authorities and effectively cope with the matters needing coordination.

The people's courts shall, with the relevant authorities, enhance the communication and coordination, effectively accept and try different civil and criminal cases involving unlawful securities activities, and impose punishment strictly in accordance with law against cases with severe nature and with great social dangers.

In the case of any major problems confronted in the course of coping with unlawful securities cases, any relevant authority may submit them to the Coordination Panel for assistance and resolution.

Supreme People's Court
Supreme People's Procuratorate
Ministry of Public Security
China Securities Regulatory Commission
January 2, 2008