Identification Of Law Firms' Due Diligence In Securities Legal Services

Since 2013,in 9 cases which law firms/lawyers have received administrative penalties from the CSRC.In all the nine administrative punishment cases,the CSRC considered that the actions of these law firms and lawyers violated the provisions of Article 223 of the Securities Law,that is,they fail to fulfill their accountability in a diligent in the process of providing securities legal services,and issued false legal documentation.China's Securities Law does not have specific description for due diligence.It is mainly based on the relevant provisions of Measures for the Administration of the Provision of Securities Legal Services by Law Firms when the CSRC judges whether the law firms and lawyers are diligent and conscientious.There is currently no relatively clear standard to determine how to judge law firms and lawyers are diligent or not.This article has compiled the 9 penalty cases mentioned above to sort out the way to judge whether law firms and lawyers are diligent from CSRC's view and compared the lawyer's duty of diligence in securities legal services with the director's diligence obligations,clarifying the lawyers' diligence standards in securities legal services,in order to further provide direction for the practice of lawyers and the supervision of regulatory agencies.Bases on a series of analysis,the author believes that the judgment of law firms and lawyers' diligence shall be based on an objectivestandard which refers to the provisions of Article 6 of the Measures for the Administration of Initial Public Offering and Listing of Stocks that required the judgment of law firms and lawyers' diligence shall subject to whether they fulfill their duty of diligence according to the widely-accepted business standards as well as the moral criterion within the sector.Similarly,in accordance with the logic of the punishment decision issued by the CSRC,the specific provision violated shall be pointed out after listing the specific illegal facts.Widely-accepted business standards should be the relevant provisions that governing the practice of law firms and lawyers in securities legal services,these regulations regulate lawyer's behavior mainly from two aspects,fulfilling procedural rules and performing the duty of care.In terms of procedural matters,the procedures that require law firms and lawyers to perform,must be clearly defined.Besides,after determining that the lawyer has not fulfilled the procedural requirements,if the Article 223 of the Securities Law is used as the basis of punishment,the causal relationship between the failure to perform the procedural provisions and the issuance of false legal documentation shall also be proved as we believe that there is an causal relationship between the lack of diligence and the issuance of false legal documents under Article 223 of the Securities Law.Duty of care include the duty of special care and the duty of care of a common person.Matters requiring the duty of special care are those matters that need to be judged and interpreted through legal expertise.And the duty of special care requires lawyers to make judgments with their legal knowledge on these matters from professional aspect.In terms of the matters that only require the duty of care of a common person,excluding those matters that require law firms and lawyers to perform special care,lawyers should not be subject to fulfill duty of care of a common person for professional documents issued by other professionals for these documents.About the scope of matters in which law firms and lawyers should perform the duty of care of a common person,this article quoted the provisions of Article 11 of the US Securities Law for the exemption of the subject other than the issuer in the issuance of false registration instructions and the judgment of Escott v.BarChris Construction Corp.It is considered that for matters that are easy to verify,law firms and lawyers should have duty care of a common person.Besides,this article quoted the provisions of trust expert defense,the lawyers should be given the right to trust to avoid giving lawyers requirement over extremely.In order to better study the definition of due diligence,this paper has adopted a variety of research methods.In addition to summarizing the existing cases,this article also summarized and explained the provisions of Article 11 of the US Securities Law,focusing on the exemptions of other subjects other than the issuer.The exemptions stipulated in this article mainly include "reasonable investigation" and "reliance expert defense".In the pioneering case of this regulation--Escott v.BarChris Construction Corp,the judge also explained the degree of "reasonable investigation" and the application of the reliance expert defense.The experience provided by American statute law and case law can provide a reference for the definition of due diligence in our country.In the analysis of the standard of due diligence,this article also compared it with the diligence of directors.Listed the criteria for judging the diligence of directors in America,UK,Germany,etc.trying to help determine the standard of due diligence of law firms and lawyers in China.Through the layered decomposition of due diligence,this article attempts to find the criteria for judging diligence and other relevant issues through the use of case analysis methods,comparative analysis methods,etc.to provide a clear direction for lawyers in the practice of securities legal services,and to provide the standards and basis for more reasonable and objective judgements of due diligence of law firms and lawyers for the regulatory agencies.