China's AllBright Law Offices Liable for Bond Issue Due Diligence Failure, Court Says
Securities intermediaries in China, including law firms, could face regulatory headwinds as civil and criminal liabilities pile on.
A Chinese court has ruled that Shanghai-based AllBright Law Offices shared civil liabilities on a bond default for due diligence failure as an intermediary.
The Chinese law firm was ordered to compensate investors RMB37 million ($5.7 million) after two bond offers issued by Zhejiang-based Wuyang Construction Group Co. Ltd. defaulted. In its decision on China’s first class action litigation related to false statements in bond issues, the Hangzhou Intermediate People’s Court held that intermediaries, including law firms, were liable for damages caused by the issuer’s misrepresentation of its financial status and ability to repay.
“The issuer used falsified financial statements to gain eligibility and the underwriters and intermediaries failed to perform due diligence. They severely hurt market credibility and disturbed market orders, infringing upon investors’ lawful rights and interests,” the court said.
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