Analyst Penalized for Fabricating 'Market Rumor Posts'; Changjiang Securities Ordered to Rectify: Criminal and Compliance Red Lines in Securities Misrepresentation
Recently, the securities industry has been hit by another compliance scandal: a former securities analyst was penalized by regulators for fabricating and spreading false "short essays" about listed companies, and Changjiang Securities, where he previously worked, was simultaneously subject to administrative regulatory measures ordering corrective action due to failures in internal control and personnel management. This incident may appear to be merely a "slip of the pen" or "attention-seeking" by an individual practitioner, but in reality it touches the most sensitive red line in the securities market: the authenticity of information. From a lawyer's perspective, fabricating "short essays" is by no means a simple issue of professional ethics; it is a serious illegal act that may trigger administrative, civil, and even criminal liability.
I. Legal Characterization of "Little Essays": False Statements or Fabrication and Dissemination of False Information?
In the context of securities law, "short essays" typically refer to significant information about listed companies' operations, mergers and acquisitions, performance, and other matters that has not been officially disclosed and circulates through social media or private channels. If the content is fabricated out of thin air, it first constitutes the "fabrication and dissemination of false information or misleading information, disrupting the securities market" prohibited by Article 78 of the Securities Law. This article clearly states that securities market information disseminated by various media must be truthful and objective, and misleading information is prohibited. Violators will face administrative penalties such as confiscation of illegal gains and fines.
At the same time, if the "short essay" involves false descriptions of major events concerning a listed company, it may also be recognized as a "false statement" regulated by Article 85 of the Securities Law. Although this article mainly targets information disclosure obligors, in judicial practice, if a non-information disclosure obligor fabricates false information and causes losses to investors, it may also bear tort liability under Article 1165 of the Civil Code. If the actor colludes with insiders of the listed company, it may constitute joint tort.
It is noteworthy that in this case, the analyst's conduct was characterized by the regulator as "fabrication" rather than "misrepresentation," which means there was subjective intent. Under the Provisions on the Ban on Entry into the Securities Market, where such conduct is serious, an individual may be subject to a ban on entry into the securities market. Changjiang Securities, as the employer, was ordered to rectify because it failed to effectively prevent violations by its practitioners, reflecting the regulator's enforcement trend of "punishing both institutions and individuals."
II. Criminal Risks: Elements of the Crime of Fabricating and Disseminating False Securities Information
Many practitioners mistakenly believe that fabricating "short essays" will at most cost them their jobs or result in fines, but this is not the case. Article 181, Paragraph 1 of the Criminal Law stipulates the crime of "fabricating and disseminating false information affecting securities and futures trading": whoever fabricates and disseminates false information that affects securities or futures trading, disrupts the securities or futures trading market, and causes serious consequences shall be sentenced to fixed-term imprisonment of not more than five years or criminal detention, and shall also, or shall only, be fined not less than 10,000 yuan but not more than 100,000 yuan.
The core elements of this crime are threefold: first, the perpetrator must have engaged in the act of "fabricating and disseminating" information; fabrication alone without dissemination does not constitute this crime. Second, the false information must "affect securities trading," meaning it involves significant matters that could alter investors' decisions. Third, it must "cause serious consequences," which in judicial practice is typically measured by triggering abnormal market fluctuations, substantial investor losses, or severe social impact. In this case, if the "short essay" was widely spread through WeChat groups, Weibo, and other channels and led to abnormal fluctuations in the relevant stock price, criminal filing is not impossible.
Even if the threshold for criminal prosecution is not met, according to the Provisions (II) of the Supreme People's Procuratorate and the Ministry of Public Security on the Standards for Filing and Prosecuting Criminal Cases Under the Jurisdiction of Public Security Organs, fabricating and disseminating false securities information shall be filed for prosecution if it is suspected of any of the following circumstances: causing cumulative direct economic losses to investors of 50,000 yuan or more; causing abnormal fluctuations in trading prices and trading volumes; or causing adverse effects. This draws a clear line between administrative violations and criminal offenses.
**III. Brokerage Internal Controls Fail: Why Was Changjiang Securities Ordered to Rectify?**
The order for Changjiang Securities to rectify this time was based on the Compliance Management Measures for Securities Companies and Securities Investment Fund Management Companies and the Guidelines for Internal Control of Securities Companies. The regulator believes that the company failed to effectively manage the professional conduct of its practitioners and that there are deficiencies in its internal control. Specifically, this may involve the following compliance loopholes: first, failure to establish an information release monitoring mechanism covering all employees; second, lack of constraints on analysts using their professional identity to speak publicly; third, failure to promptly investigate violations in employees' self-media accounts.
From the perspective of legal practice, securities firms, as financial institutions, bear management responsibility for their employees' conduct in the course of their duties. Article 140 of the Securities Law stipulates that securities companies shall establish and improve internal control systems and adopt effective isolation measures to prevent conflicts of interest between the company and its clients, and among different clients. If false information spreads due to a failure of internal controls, the securities firm will not only face administrative penalties but may also be named as a co-defendant by investors and held jointly and severally liable for compensation.
In recent years, regulators have continuously tightened compliance requirements for brokerage research reports and analyst commentary. In 2023, the Securities Association of China revised the Code of Conduct for Securities Analysts, explicitly stating that analysts must not use media to create or spread false or misleading information. The Changjiang Securities case serves as another warning: institutions must not focus solely on performance rankings, but must also invest real money in compliance training for personnel, review of information disclosure, and public opinion monitoring.
IV. Investor Rights Protection Pathways: How to Claim Compensation for Losses Caused by "Little Essays"?
For ordinary investors, if they suffer losses after buying stocks based on "small essays," can they claim compensation? The answer is yes, but specific conditions must be met. According to Article 85 of the Securities Law and the Supreme People's Court's Provisions on Several Issues Concerning the Trial of Civil Compensation Cases Involving Misrepresentation Infringement in the Securities Market, investors seeking compensation must prove: the existence of misrepresentation, their own trading during a specific period, and a causal relationship between the losses and the misrepresentation.
Specifically in "short essay" cases, if the fabricator is subject to administrative penalty or criminal conviction, the penalty decision or judgment can be directly used as preliminary evidence of false statements. Investors may sue the fabricator; if the brokerage is at fault, it may also be sued jointly for joint and several liability. The statute of limitations is three years, starting from the date when the rights holder knew or should have known of the infringement and the obligor.
Investors should be reminded to properly preserve evidence such as transaction records, chat screenshots, and reposted links. In judicial practice, courts apply a relatively strict standard when determining causation for "short essay"–type misrepresentations, typically requiring the false information to be "material," meaning it is sufficient to influence a reasonable investor's decision-making. Therefore, not all losses are compensable, and it is advisable to consult a professional securities rights-protection lawyer for a case-by-case assessment before filing a lawsuit.
V. Compliance Implications for Listed Companies, Brokerages, and Practitioners
This incident serves as a wake-up call for all market participants. For listed companies, a rapid response mechanism for public opinion should be established, and once a "short essay" is spotted, clarification should be issued immediately through statutory channels to avoid losses expanding due to silence. For securities firms, analysts' self-media activities must be incorporated into compliance assessments, case-based warning education should be conducted regularly, and technological means should be used to monitor content published externally by employees. For individual practitioners, never fabricate information to chase traffic, vent personal grievances, or assist others in market manipulation. Once an administrative penalty record is left, one's career is essentially over, and one may even face imprisonment.
Guangdong Zhiming Law Firm has long focused on the fields of securities compliance and investor protection. We provide listed companies and securities firms with legal services including internal control system review, compliance training, and responses to administrative investigations. We also represent investors in civil compensation lawsuits for securities misrepresentation, assisting with evidence collection, establishing causation, and calculating losses. In an era of tightening regulation, only by revering the law and respecting the market can one achieve steady and long-term success.
