Recently, Fangda helped an accounting firm avoid civil liability in a securities misrepresentation case in which the accounting firm was named as a defendant along with its client, a listed company. Even though the first-instance judgment found the listed company and its responsible personnel were civilly liable for securities misrepresentation, the accounting firm was cleared of any liability due to Fangda's efforts in formulating effective defense strategies and conducting meticulous discovery and in-depth analysis.
In civil disputes over securities misrepresentation, determining an intermediary institution's “gatekeeping” responsibilities and its fault remain central issues. This judgment clarifies that an intermediary's core duty is to comply with statutory procedures and exercise professional prudence; the intermediary does not stand as the ultimate guarantor for fraudulent conduct by a listed company that retains the accounting firm for securities services. For the accounting firm, its liability is a “relative responsibility” related to its performance of its duty of diligence rather than an “absolute responsibility” for any error in audit results even if that error is caused by the listed company.
The judgment is significant for defining the boundaries of liability for accounting firms and other securities service institutions, for promoting the sound and stable development of the capital markets, and for guiding other courts in adjudicating similar disputes.
Our Dispute Resolution team in the case was led partners Allen Fu and Sophia Feng. Team members included Laurie Zhou, Pan Danyang, and Li Qian. Fangda will continue to leverage its deep expertise in financial dispute resolution to provide clients with forward-looking and strategic representation and legal support.