Study On Legal Regulation Of Fraud Problems In China’s GEM

GEM (Growth Enterprise Market) is the stock market which is out of themotherboard market, to provide growth SME (Small and Medium-sizedEnterprises) financing channels. GEM has played a huge role in thedevelopment of high technology and growth SME. China’s GEM was officiallyestablished in Shenzhen Stock Exchange in October2009, although dating backonly two years, but has shown a strong vitality.The founding of the American NASDAQ in1971marked the birth of GEM.Growth SME listing in GEM are mostly high-tech enterprises or enterprises inemerging industries. Because of the shorter history, smaller scale and no clearmarket prospect, GEM has a higher risk compared to the motherboard market.China’s GEM just exists more than two years, lacking of experience, and therelevant legal system requires continuous exploration and improvement. At thesame time, interests and other factors lead to a variety of fraud phenomenon. Inorder to promote healthy and orderly development of China’s GEM, we must effectively regulate our GEM fraud problems.To be specific, the paper includes six parts except introduction andconclusion.Part one is a detailed account of the fraud case of the PermanentPhotoelectric Technology Company, Ltd. in Suzhou. Questions drawled forthfrom the introduction of the case are：Why do GEM fraud problems appear?Why do investors who suffered losses get a little compensation?Part two is a brief introduction of GEM. In this part, firstly introduce thedefinition of GEM, secondly summarize the features of GEM, and lastlyintroduce the three operation forms of GEM.Part three introduces the specific performance and analyzes the causes ofthe GEM fraud problems. This part discusses the specific performance of GEMlisted companies and securities market intermediaries’ fraud in detail, andanalyze reasons of GEM fraud problems.Part four introduces China’s legal system of GEM fraud problems andanalyzes their inadequacies. Specifically, this part introduces inadequacies in six fields: system of legal forms、regulatory mechanism、accountability mechanism、punitive measures、litigation mechanism and independent director system.Part five introduces the experience of foreign countries on the regulation ofthe GEM fraud, mainly from the regulatory system and information disclosuresystem to be introduced. In the GEM regulatory system, U.S. NASDAQ adoptsgovernment regulation model, but also attaches great importance to theregulation of self-regulatory bodies; AIM in the UK adopts self-regulatorymodel, government is less involved in the GEM except formulating necessarylegislation. In the GEM information disclosure system, U.S. NASDAQimplements double information disclosure system. NASDAQ and AIM bothattach great importance to the issue of information disclosure and continuousdisclosure, and they both establish more stringent information disclosure systemthan the motherboard market.Part six gives some personal advices of regulation perfection of the GEMfraud problems. These advices are raised according to the inadequacies of theregulation of China’s GEM fraud. On the legislative front, it is recommended to clean up relevant existing provisions and formulate rules of implementation; inthe GEM supervision, to strengthen multi-level regulatory system and increasesupervision; on the civil liability mechanisms of accountability, to abolish thepre-program and improve the civil compensation system. At the same time, thepaper proposes to establish lenient heterozygosis punishment system, improvethe system of litigation representative and strengthen the recommendation of theindependent director system, and put forward specific improvement measures.