Study On Advance Compensation System Of Sponsor

Deceptive issuing behaviors, like false statement, have occurred frequently in the securities market in recent years. Sponsors, with the liability to carry out careful verification obligations, do not conduct due diligence for their own interests, which seriously weakens the confidence of the investors to invest in securities market and affect the normal trading of securities market. Therefore, China Securities Regulatory Commission(hereafter the CSRC) reiterated to establish the advance compensation system of sponsor. The sponsor with the liability of recommendation shall compensate the investors who suffer from lost in the securities market due to deceptive issuing problems according to the self discipline commitment and has the right to claim to the other parties. Wanfu Biotechnology case is the only case which is directly relevant with the advance compensation system of sponsor. Ping an Securities compensates the investors for their loss before the administrative penalties by CSRC and civil judgment by court, which protects the rights and interests of the investors and stabilizes the securities market with the positive significance. This article focuses on the case study of Wanfu Biotechnology to conduct a research on the specific implementation and the problems of the advance compensation system of sponsor.Except for introduction, the main content of this article is consisted with four chapters and conclusion.The introduction clarifies that CSRC reiterated to establish the advance compensation system of sponsor, which is consistent with the development of China’s securities market. There are less theory and practical literature which is directly relevant with the system. The establishment of the system is creative and has practical significance. There are imperfections as no relevant basis about the system.The first chapter describes the relationship between the sponsor and advance compensation system. It also clarifies what duties of the sponsor shall bear during the issuing period and why the sponsor shall take responsibility of advance compensation of deceptive issuing behaviors. The chapter outlines the advance compensation system with the definition, the analysis of partners and main contents of the advance compensation. According to the analysis of advance compensation by CSRC, we shall define the system first. There are no relevant rules about the advance compensation system except the commitment by sponsor regulated in Standards for the Contents and Formats of Information Disclosure by Companies Offering Securities to the Public No. 1—— Prospectus, which makes the advance compensation system in a ambiguous status. The chapter analyzes the system with the study of Hong Kong sponsor system. The Hong Kong sponsor system was established earlier with the basis of investor protection funds.The second chapter conducts the research about how to establish the system of advance compensation of sponsor in China with the case study of Wanfu Biotechnology Case. It describes the background information of Wanfu Biotechnology with the processing results and the way of financial cheating. It analyzes how Ping An Securities Company compensates the investors to determine time and loss. It analyzes the fund manager, bank account manager, funds transfer operator to better establish the management of advance compensation of sponsor. It analyzes the legal consequences o and positive significance of advance compensation. It does not mean the sponsor shall take all the loss of the investors due to the advance compensation system. The sponsor shall still have the right to claim to the other parties for money after the advance compensation. The advance compensation system of sponsor is good for the health competition between them. The sponsors shall take their responsibilities and protect the rights and interests of the investors.The third chapter, with the study of the questions which did not occur in Wanfu Biotechnology case, conducts the research on the questions to be solved. Firstly, it focuses on the system of compensation to better solve the conflicts between the mediation and judicial lawsuit. We shall pay attention to it since there are no rules regulating the relationship between mediation and lawsuit. It further clarifies the causal relationship between the loss and compensation. Please also pay attention that if the raised funds are not enough to cover the loss. The sponsor shall not take the risk of bankruptcy to compensate the investors because the sponsor is the one who shall take the ultimate responsibility. It also discusses the limit of time period. The time for advance compensation shall be decided case by case. Last but not least, we shall take into account that the sponsor may force the other party to do something to avoid its responsibility.The fourth chapter, from the legislative suggestions perspective, clears legal status, specific implementation and other questions not occurring in Wanfu Biotechnology case, like how to coordinate between accepting the settlement and litigation and the causal relationship between the loss and compensation to better establish advance compensation system.A brief summary was made on countermeasures and suggestions in the conclusion on these issues.