Investors win first class-action suit

In a historic verdict, the Guangzhou Intermediate People's Court ruled in favor of investors in a securities class-action suit – the first of its kind in China – against Guangzhou-based Kangmei Pharmaceutical, a drug maker that had massively inflated its financials, making it one of the worst accounting scandals in the A-share market. Ma Xingtian, former Chairman and General Manager of Kangmei and five others, Guangzhou-based GP Certified Public Accountants, the Auditor of Kangmei, and others were found jointly and severally liable, the court said in a statement on its website. Investors lost a combined CNY2.46 billion, which Shanghai-listed Kangmei was ordered to reimburse.

It was disclosed that the drug maker had inflated revenues, interest income, operating profits and cash in its financial reports, while the auditor had falsified records in its auditing report. The Guangzhou court held a public hearing of the securities fraud class-action lawsuit in July. The case was initially accepted by the court at the end of 2020 as 11 investors sued Kangmei over falsified disclosures. “The first instance ruling came just slightly over half a year after an unprecedented class-action suit was considered applicable to the case, arguably indicating high efficiency and enabling average investors to reclaim fraud-induced losses in a convenient and practical manner,” Hao Junbo, Chief Lawyer at the HAO Law Firm in Beijing, told the Global Times.

In a statement shortly after the decision was announced, the China Securities Regulatory Commission (CSRC) hailed the verdict of the case, the first special representative action in the country, as a vigorous measure to implement the country's revised Securities Law and a pioneering, iconic and milestone effort to safeguard investors' legitimate rights and interests. The securities regulator vowed to improve the class-action litigation mechanism and push for special representative action suits on a regular basis, the Global Times reports.