Study On Calculation Methods Of Damages For Misrepresentation In Secuirties Litigations

The central theme of this paper is: how to improve the calculation methods ofdamages for misrepresentation in securities litigations in China, by learning from thelegislative and judicial experience of the U.S., The purpose of the study is to perfectthe calculation methods of damages for misrepresentation in securities litigations inChina against the defects in our related legislation. In this paper, comparativeapproach and Interdisciplinary approach are used. Creative achievements are asfollows: a complete set of calculation methods of damages for misrepresentation insecurities litigations is designed, and creative methods to the problems in our relatedlegislation are proposed.In addition to the introduction and conclusion, the body part is divided into threechapters. The first chapter analyzes the defects in our legislation about the calculationmethods of damages for misrepresentation in securities litigations; The secondchapter introduces the legislative and judicial experience of the U.S.; the third chapteroffers the proposal to improve the relevant legislation in China for the defectsdescribed in the first chapter, learning from the legislative and judicial experience ofthe U.S..The first chapter introduces the provisions of the calculation methods ofdamages for misrepresentation in securities litigations in <Some Provisions of theSupreme People’s Court on Trying Cases of Civil Compensation Arising from FalseStatement in Securities Market>, and points out the defects: first, the victimizedinvestors’ right of rescission in primary market is limited. Second, the range ofdamage is too narrow. Third, the calculation methods of investment losses are flawed,on the one hand, simply taking the buying price of securities as the minuend iscontrary to the principle of causality, when securities is bought before the date of the false statements implementation; on the other hand, which calculation method shouldbe used is not clear, when there are more than one investment behavior. Forth, it is notscientific taking the date when the cumulative volume of the security affected bymisrepresentation reaches100%of its tradable part as base date.The second chapter describes section11,12in the Federal Securities Act of1933,and rule10b-5in the Federal Securities Exchange Act of1934. It focuses on thejudicial practice experience under rule10b-5. In lawsuits under rule10b-5, civilremedies can be grouped into the following three categories: general damages,consequential damages and the other remedies. General damages are the mostimportant civil remedies. There are two kinds of calculation methods—theout-of-pocket measure and the benefit-of-the-bargain measure. Thebenefit-of-the-bargain measure only applies to cases in which the expected benefitscan be clearly proved. The out-of-pocket measure is the most accurate andappropriate calculation method of damages for misrepresentation in securitieslitigations, and has been used widely by courts in the United States. There are severaldifferent assessment methods to assess the true value of the securities, among whichthe one used most commonly is the market price method. While using the marketprice method, Two problems need to be solved—to determine the base date to assessthe true value of the securities (the U.S. Congress passed the Securities LitigationReform Act in1995, which provide a90-day period to assess the true value of thesecurities), and how to calculate the true value of the securities on trading day, basedon the true value of the securities on the day when false statement is disclosed orcorrected(two econometric models are used most widely in American judicialpractice-"constant true value"method and "constant ribbon"method).The third chapter offers some proposals to improve the relevant legislation inChina for the defects described in the first chapter, learning from the legislative andjudicial experience of the U.S. First, give the victimized investors in primary marketcomplete right of rescission, without distinguishing whether the issuance of securitiesaffected by the false statement is stopped. Second, expand the scope of damages intwo aspects--the range of damages of investment losses and the range ofconsequential damages. Third, improve the calculation method of damages (First, take the latter day between the trading day and the day when false information isreleased as the starting time point of the calculation, and take the closing price of theday as the minuend; second, let the court determine the “follow-up period” accordingto the securities price volatility diagram and the specific case, third, use “constantproportion” method to determine the true value of the securities on the trading day,based on the true value on the disclosing or correcting day. Finally, use movingweighted average method to calculate the investment loss, when there are more thanone investment behavior).