The first case of misrepresentation in the interbank bond market in China was adjudicated in the first instance
2023-01-03
The Beijing Financial Court filed and accepted a dispute over liability for bond misrepresentation on the day of its establishment, namely the "No. 1 Case", and made a first instance judgment on December 30, 2022. The first instance of the Beijing Financial Court confirmed in accordance with the law that Dalian Machine Tool Group Co., Ltd. made false statements in the process of issuing bonds, further confirmed that the banks involved in the case and relevant accounting firms, law firms and other service institutions also made false statements, and was sentenced to bear joint and several liabilities with the issuer within its scope of responsibility. On March 18, 2021, the Beijing Financial Court accepted the "first case of opening the door" - "Bluestone Assets and Industrial Bank, etc.", the first case of liability dispute for misrepresentation in the inter-bank bond market in China, online on the day of its establishment, with the amount of litigation object exceeding 500 million yuan. In August 2016, Dalian Machine Tool Group issued 500 million yuan of ultra short-term financing bonds, which were successively purchased and held by funds managed by Bluestone Assets. After the maturity of the financing bonds, the issuer was unable to repay the principal and interest, and was later ruled bankrupt and reorganized by the court. Bluestone Assets disclosed false statements about the issuance information of the bonds involved in the case, which led to its purchase of "junk bonds", resulting in significant losses. Therefore, Industrial Bank, the main underwriter of the bonds, and a number of service institutions including law firms, accounting firms, and credit evaluation companies were sued together. As this case involves the court's determination of the existence of false statements in the issuance of bonds, the determination of the boundaries of obligations and responsibilities of issuers, investors and various service institutions in the inter-bank bond market has attracted extensive attention. During the trial of the case, according to the principle of allocation of burden of proof in the Several Provisions of the Supreme People's Court on the Trial of Civil Compensation Cases for Misrepresentation Infringement in the Securities Market, and through the plaintiff's proof and judicial audit procedures in the lawsuit, the Beijing Financial Court confirmed that Dalian Machine Tool Group Co., Ltd. had false statements in the process of issuing bonds, including concealing the true financial situation, fabricating the pledge of accounts receivable, etc, On this basis, it is further confirmed that the banks involved in the case, relevant accounting firms and law firms also have false statements. The Beijing Financial Court held that the bank involved in the case did not fully perform its due diligence and due diligence obligations of due diligence and independent judgment on the corporate financial information issued by Dalian Machine Tool Group, especially the four high pledge accounts receivable, and did not perform the obligations of prudent verification and necessary investigation and review on the annual audit report issued by the accounting firm and the legal opinion issued by the law firm, which constituted false statements. The accounting firm fails to make professional judgment and maintain professional suspicion in the audit process, and fails to perform due diligence in the audit process, which also constitutes a false statement; The law firm failed to verify the authenticity of the accounts receivable in accordance with the industry requirements to determine whether the bonds involved in the case have obtained legal and effective credit enhancement, and then issued a legal opinion, which constitutes a false statement. The court also held that, as a professional institutional investor, Bluestone's investment decision was affected by false information disclosure to some extent, but its duty of care was still different from that of ordinary investors. Under the condition that the financing bonds involved in the case have been continuously issued by the issuer, underwriter and rating agency with the risk reminder of failure to honor, the purchase of Bluestone assets still persists, which can mitigate other infringers
Edit：Hou Wenzhe Responsible editor：WeiZe
Source：chinacourt.org
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