Identification On Intermediaries'Due Diligence In False Statement Cases

Intermediaries' due diligence in false statements cases relates to the final determination of liability and damages.The liability determination of the intermediaries requires that the intermediary's legal liability shall be based on the basic principles of the tort law,while taking into account the balance of interests between the target company,investors and intermediaries.Identifying intermediaries' liabilities requires consideration of three fundamental factors: the real cause of damage(the company's own fraudulent behavior),the intermediaries' practice fault,and the investor's fault.Therefore,the general framework and path of liability determination is to equitably distribute the investors' loss due to the false statement among the target company(information provider)?intermediaries(information reviewer)?investor(information user).The target company naturally assumes the prime liability,and the intermediaries assume corresponding liability according to its own fault and fault level,and relieve the responsibility if the investor is at fault.Idid the research from the perspective of due diligence,which determine the fault and in turn affects the determination of liability.In the past,scholars mainly analyzed the due diligence from the perspective of one single intermediary.I summarize and demonstrate the due diligence from the macro perspective of sponsor institutions,audit institutions,and legal service agencies,and given that the false statements in the securities market are mainly concentrated on the issuance and listing stage,I will discuss the point from the perspective of issuance and listing.This article is divided into four chapters.The brief contents of each chapter are summarized as follows:The first chapter discusses the basic theory of false statement.Intermediaries implemented false statements by making false statements in sponsorship documents,audit reports,and legal opinions which lead to the investor's trust in the transaction and the result of economic losses in the end.There is a causal relationship between the damage and the false statement,and the investor must prove the transaction causation and the loss causation.Intermediaries need to be at fault and assume the liability of presumptive fault.The second section puts forward the criterion for the determination of liability is whether conform to the due diligence,and also expound the connotation of due diligence and the reasons why intermediaries need due diligence.The second chapter mainly analyzes how the administrative organs recognize the due diligence in practice from the perspective of administrative punishment.The first section explains the general reasons for failing to perform due diligence summarized form the administrative punishment decisions.The main reasons include “clear violations”,“process defects” and “defective professional opinions”,which are not separated from each other,but are integrated and interact as both cause and effect.The second section summarizes defenses and responses of two parties in regard to administrative penalty decision.It can be seen that the two sides have different understandings of the due diligence standards.The controversy mainly lies in “the matter blamed on issuer” and “whether the necessary due diligence has been executed”.In general,the administrative agencies may set an excessively high standard of due diligence for intermediaries in some respects in order to protect investors.The third chapter starts from the classic Barchris case to analyze how the US court identify the due diligence.The first section mainly introduces the basic fact of the Barchris case.As the defendant,the intermediaries all raised their own defenses for reasonable investigation.The court conducted the detailed analysis and gave different recognition results for different behaviors.The second section analyzes the court's argumentation process from the perspective of underwriters,accounting firms and law firms.The third section summarizes the US's opinions on due diligence.The court believes that the underwriters' due diligence does not have an absolute standard,circumstances alter cases.The accounting firm needs to follow the higher standards of general accounting standards.The due diligence criteria can be considered from both guidelines and procedures.The fourth chapter puts forward the improvement suggestions on identifying due diligence.The first section firstly divides the respective responsibilities of the intermediaries to determine the horizontal framework of due diligence.I put forward the recommendations based on the profession,and thus draws the defense of “experts trust”.The second section puts forward the concept of compliance and rationality for professional review.The rationality judgment is more subjective and more difficult than the compliance review.Therefore,the rationality judgment can be objectively judged which provides a clearer standard and reference to identify the due diligence.The third section puts forward the relationship between compliance judgment and due diligence.Although due diligence is directly regarded as compliance judgments in practice.In fact,compliance judgement and due diligence are not completely equal.I focus on situations where due diligence is below and equal to compliance judgment criteria.When due diligence standard is lower,it can be analyzed form “due diligence involving government agencies” and “active disclosure obligations”.When they are equal,different levels of due diligence are required according to different levels of compliance judgment.