A decade-old case has sparked new developments.

Recently, A-share listed company Zhong'an Ke announced that it has filed a lawsuit with the Shanghai Financial Court against China Merchants Securities, which served as the independent financial advisor for the company's significant asset restructuring. The lawsuit alleges that due to China Merchants Securities' failure to fulfill its duties diligently and in accordance with the law as stipulated, the company suffered losses. Ten years ago, Zhong'an Ke was penalized by administrative departments for financial fraud and other issues, and subsequently paid substantial compensation to investors.

Regarding Zhong'an Ke's claim for compensation, reporters from China Fund News learned that China Merchants Securities will take legal measures to safeguard its legitimate rights and interests. It is understood that according to the effective judgments of the relevant courts, China Merchants Securities was determined to bear joint and several compensation liability to investors within the scope of 25%, with a total amount of 287 million yuan. China Merchants Securities has fulfilled its compensation responsibility to investors in accordance with the principle of "compensate fully as required by law," and the compensation has basically been completed.

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The listed company claims 1.5 billion yuan from the securities firm.

Zhong'an Ke stated that as the independent financial advisor for the company's significant asset restructuring, China Merchants Securities failed to fulfill its duties diligently and in accordance with the law as agreed, resulting in losses to the company, prompting the lawsuit to the Shanghai Financial Court. On October 10, 2024, the company received the "Notice of Acceptance" from the Shanghai Financial Court.

Zhong'an Ke indicated that in May 2013 and August 2014, the company signed the "Financial Advisor and Continuous Supervision Agreement for Major Asset Restructuring Project" and the "Supplementary Agreement for Financial Advisor and Continuous Supervision Agreement for Major Asset Restructuring Project" with China Merchants Securities, respectively, agreeing that China Merchants Securities would provide independent financial advisory and continuous supervision services for the company's major asset restructuring. On January 23, 2015, with the full guidance and participation of China Merchants Securities, the company completed the registration of additional shares, and the significant asset restructuring was completed.

In May 2021 and September 2022, the Shanghai High People's Court and the China Securities Regulatory Commission (CSRC) respectively issued a "Civil Judgment" and an "Administrative Penalty Decision" against China Merchants Securities, determining that the documents issued by China Merchants Securities in the process of providing financial advisory services for the company's major asset restructuring contained misleading statements and failed to fulfill its duties diligently, resulting in administrative penalties for China Merchants Securities and the project supervisors.

Zhong'an Ke stated that as the independent financial advisor for the company's significant asset restructuring project, China Merchants Securities failed to fulfill its financial advisory duties diligently and in accordance with the law as agreed, with serious errors in professional judgment. This led to misleading statements and false records in the company's information disclosure during the restructuring project, resulting in administrative penalties and substantial compensation payments to investors. China Merchants Securities also failed to conduct necessary due diligence for this restructuring activity, failed to help the company identify significant risks in the restructuring project, and issued incorrect opinions on the fairness of the pricing of the restructuring transaction, leading to a serious overvaluation of the assets injected into the restructuring, severely damaging the company's interests and causing significant losses. The breach of contract by China Merchants Securities violated both legal provisions and the agreement between the two parties, and was the direct cause of the company's losses.

Zhong'an Ke has put forward two litigation requests:1. The company requests a judgment ordering China Merchants Securities to compensate for a total loss of RMB 1.5 billion, including the compensation paid to investors and shares, fines paid by the company, and the consideration for the inflated valuation.

2. The company requests a judgment ordering China Merchants Securities to return a financial advisory fee of RMB 31.5 million and pay interest on the loss. The above litigation claims are temporarily estimated at RMB 1.5315 billion.

China Merchants Securities has essentially completed compensation to investors.

In June of this year, the Supreme People's Court released typical cases of financial fraud, including the civil liability dispute over false statements in securities involving investors suing Zhongmou Company, China Merchants Securities, Rui会计师事务所, and others - a case where independent financial advisors and accounting firms should bear responsibility for not fulfilling their duties diligently in significant asset restructuring of listed companies.

On May 31, 2019, Zhongmou Company issued an announcement regarding the receipt of the "Administrative Penalty Decision" from the China Securities Regulatory Commission (CSRC). The CSRC determined in the penalty decision:

1. In November 2013, Zhongmou Technology Company, based on the strategic cooperation framework agreement signed with a local government, issued a "Statement on the Performance Forecast of the 'Classroom Connectivity' Project" and a "Profit Forecast Report". However, during the bidding process of the project, Zhongmou Technology Company did not actually win the bid, knowing that the framework agreement was difficult to continue to perform, but it did not timely recompile and provide a "Profit Forecast Report", leading to a serious distortion of the evaluation conclusion and a serious overestimation of the valuation of the assets to be injected.

2. In 2013, Zhongmou Technology Company recognized income for the "Smart Shi Guai" project under the percentage of completion method without meeting the conditions for revenue recognition, resulting in an overstatement of its operating income by RMB 50 million for the year 2013, and the audited financial report contained false records. The CSRC determined that the above actions constituted false statements in securities.

Investor Li and others sued, requesting a judgment ordering Zhongmou Company, Zhongmou Technology Company, China Merchants Securities, Rui Accounting Firm, and others to jointly compensate for their investment difference losses, commission losses, stamp duty losses, etc.

The Shanghai High People's Court and the Shanghai Financial Court, after trial, believed that although China Merchants Securities and Rui Accounting Firm did not receive administrative penalties, they both failed to fulfill their duties diligently in the significant asset restructuring involved in the case, leading to a serious overestimation of asset pricing and false records in related information disclosure.

The Shanghai High People's Court and the Shanghai Financial Court, after trial, believed that by comprehensively considering the nature of their actions, the degree of fault, and the causal relationship with the investors' losses, they respectively determined that China Merchants Securities should bear joint compensation responsibility for the civil liability of false statements in securities of Zhongmou Company within a range of 25%, and Rui Accounting Firm within a range of 15%.It is understood that according to the joint compensation liability determined by the effective judgment of the court, the total compensation amount for China Merchants Securities is 287 million yuan. China Merchants Securities has fulfilled its compensation responsibility to investors in accordance with the principle of "compensate as much as possible" and has basically completed the compensation.