Times Observation: Using thunderous measures to strictly punish listed companies that ride the trend and hype concepts

Securities Times Reporter Cheng Dan

Since the beginning of this year, with the rising popularity of fields such as brain-computer interfaces and commercial space travel, some listed companies have attempted to leverage these concepts through interactive platforms and announcements in an effort to drive up their stock prices. Recently, several listed companies have received hefty fines for capitalizing on hot topics. The penalties not only target the involved enterprises but also hold accountable the actual controllers, directors, and senior executives, the “key few.”

The China Securities Regulatory Commission’s (CSRC) stance is clear and resolute; any behavior that harms investors’ interests under the guise of speculating on concepts or riding hot topics will be strictly and swiftly investigated, with no leniency. It’s noteworthy that the CSRC’s crackdown on leveraging hot topics is accelerating, with several cases moving from registration to penalties in just over a month, with single-case fines reaching several million yuan, and implementing joint accountability to curb the chaos of concept speculation with a heavy hand.

Despite the regulatory authorities maintaining a high-pressure stance, the phenomenon of riding hot topics continues unabated, with some “key few” knowingly engaging in illegal activities against the rules. The core issue lies in the imbalance between the cost of illegal activities and the profits gained in China’s capital market, making administrative penalties insufficient as a deterrent.

From a legal perspective, the act of riding hot topics by listed companies is often classified as “misleading statements,” falling under the category of violations of information disclosure laws. Criminal accountability primarily relies on Article 161 of the Criminal Law, which addresses “the crime of illegally disclosing or failing to disclose important information.” However, due to the stringent conditions for this offense, it is difficult to establish in practice, and convictions are rare. According to current regulations, accountability must meet the criteria of “huge amounts, serious consequences, or other serious circumstances,” such as artificially inflating assets, revenue, or profits by more than 30% in the current period, or failing to disclose significant matters that account for over 50% of net assets, which can trigger prosecution; the baseline penalty is imprisonment for less than five years or detention. In addition, difficulties in establishing subjective intent and the complexity of proving causation contribute to many cases of riding hot topics remaining at the administrative penalty stage, with very few initiating criminal procedures.

In contrast, in mature capital markets, fraudulent statements and concept speculation are categorized as securities fraud, with criminal accountability being normalized. Taking the U.S. market as an example, in addition to hefty civil damages, responsible parties can face up to 25 years in prison. For instance, a CEO of a biotech company was sentenced to 30 months in prison and had all illegal gains confiscated for fabricating drug development progress and cashing out at high positions, a punishment severe enough to deter market participants.

In the face of enormous profit temptations, the low cost of illegal activities may push some listed companies to take risks. Only by further strengthening the connection between criminal enforcement mechanisms, lowering the threshold for criminal accountability, and solidifying the responsibility of the “key few,” can we fundamentally eliminate market chaos and effectively safeguard market order and the legitimate rights and interests of a broad base of small and medium investors.

(Author: Wang Zhiqiang HF013)

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