How was Kangmei Pharmaceutical’s huge compensation of 2.45 billion calculated?

On November 12, 2021, the Guangzhou Intermediate People’s Court made a judgment in the high-profile special representative litigation case of Kangmei Pharmaceutical’s false statement. Kangmei Pharmaceutical must compensate 52,037 investors for their investment losses. 2,458,928,544 yuan, this amount of compensation is the largest compensation for misrepresentation by a listed company.

The asset management legal review will be based on relevant legal provisions and combined with the actual situation of the Kangmei Pharmaceutical case, break down the investment loss amount of 2.45 billion, and briefly describe how the compensation amount is calculated.

Composition of investment losses

According to the "Several Provisions of the Supreme People's Court on the Trial of Civil Compensation Cases Caused by False Statements in the Securities Market" (hereinafter referred to as: "Several Provisions"):

Article 30 The scope of the civil liability of the perpetrator of false statements in the securities trading market is limited to the actual losses incurred by investors due to the false statements. The actual losses of investors include: (1) Investment difference loss; (2) Commission and stamp tax on the investment difference loss. The interest on the funds involved in the preceding paragraph shall be calculated based on the bank's current deposit interest rate for the same period from the date of purchase to the date of sale of securities or the base date.

Therefore, the civil judgment of the Guangzhou Intermediate People’s Court clarified that investment losses consist of four parts: investment difference losses and corresponding commissions, stamp duties, and interest losses.

Among them, investment difference loss = (average buying price - average selling price or benchmark price) number of shares held (1-the impact ratio of securities market risk factors)

Commission loss = Investment difference loss 0.03

Stamp duty loss = Investment difference loss 0.1

Interest loss = (Investment difference loss, commission loss, stamp tax loss) 0.35 from the first valid purchase date to the last transaction The actual number of days on the selling day or the base day/365 days

It can be seen that calculating the investment difference loss is the core of calculating the investment loss, and determining the average buying and selling price, average selling price, and base price , which is the basis for calculating investment difference losses.

Average buying price, average selling price, base price

According to the Supreme Court’s "Several Provisions": Article 31 Investors who sell securities on or before the base date , the investment difference loss is calculated as the difference between the average price of purchased securities and the actual average price of sold securities, multiplied by the number of securities held by the investor.

Article 32 If an investor sells or still holds securities after the base date, the investor’s investment loss will be calculated as the difference between the average price of the purchased securities and the date when the false statement was revealed or corrected to the base date. During the period, the difference between the average closing prices on each trading day is calculated by multiplying the number of securities held by the investor.

However, the "Several Regulations" do not clearly stipulate the calculation method of the average buying price and the average selling price. According to the "Securities Investor Loss Calculation Report" issued by the investment insurance fund, the investment insurance fund adopts the moving weighted average method. Calculate the average buying price and selling price. This method was approved by the Guangzhou Intermediate People's Court.

Average purchase price = (Amount of shares purchased this time Total cost of shares held before this purchase) / (Number of shares purchased this time Number of shares held before this purchase)

Average selling price = total amount of effective sales from the disclosure date (inclusive) to the base date (inclusive)/total effective sales quantity

The investment difference loss obtained by this method includes selling losses and holding losses.

Selling loss = (average buying price - average selling price) Total number of shares effectively sold

Holding loss = (average buying price - base price) Base date Number of valid shares remaining

The base price here is the average closing price on each trading day from the date when the false statement was disclosed to the base date.

Through calculation, the base price is 12.70 yuan

Disclosure date and base date

According to Article 20 of the Supreme Court's "Several Provisions", the false statement disclosure date refers to the nationwide The date when it is first publicly disclosed in newspapers, magazines, radio stations, television stations and other media that publish or broadcast it.

Article 33 The base date for calculating investment difference losses refers to the day after the false statement is revealed or corrected. In order to limit the compensation that investors should receive to the scope of the loss caused by the false statement, the loss calculation is determined. a reasonable deadline.

In the Kangmei Pharmaceutical case, according to the "Securities Investor Loss Calculation Report" issued by the insurance fund, the selected disclosure date was October 16, 2018, and the base date was December 4, 2018.

October 16, 2018 is the date when the self-media questioned Kangmei Pharmaceutical’s financial fraud. This date was selected as the day of disclosure for the following reasons: First, the main content of the report questioned by the self-media is inconsistent with the administrative nature of the China Securities Regulatory Commission. The nature and type of financial fraud determined by the penalties are basically the same, which meets the consistency requirements of the disclosure behavior; secondly, the content disclosed by the self-media triggered a huge market reaction and met the warning requirements of the disclosure behavior; thirdly, although the disclosure article was only first published in We-media is not official media, but in today's booming mobile Internet, articles published in self-media may quickly attract more media attention and reprints. Judging from this case, the relevant articles were indeed reproduced by many media, and directly caused the Baidu search index and information index of Kangmei Pharmaceutical to increase sharply, becoming the focus of public opinion, meeting the extensive requirements of disclosure behavior, and achieving the disclosure effect.

December 4, 2018 is the day when the turnover rate of Kangmei Pharmaceutical’s listed tradable stocks reaches 100, which complies with Article 33 of the Supreme Court’s “Several Provisions” on the base date for calculation of investment difference losses. relevant regulations.

The proportion of influence of risk factors in the securities market

According to Article 19 of the Supreme Court's "Several Provisions", if the defendant provides evidence to prove that the plaintiff has the following circumstances, the people's court shall determine that the false statement and the damage result There is no causal relationship between: (4) The loss or part of the loss is caused by other factors such as securities market systemic risks.

Therefore, when calculating investment difference losses, the systemic risk factors of the securities market should also be deducted. According to the "Securities Investor Loss Calculation Report" issued by the investment insurance fund, the method for deducting systemic risk is to select the Medical and Biological (Shenwan) Index (801150) as the reference index for system risk deduction, and use the "Individual Relative Proportion Method" to calculate investor Securities market system risk deduction ratio.

The people being measured may be affected by the systemic risks of the securities market to varying degrees. The specific calculation formula is:

Market system risk deduction ratio = weighted average decline of the index during the period of buying and selling securities/weighted average decline of individual stocks during the period of buying and selling securities

Index weighting Average decline = (Index selling loss, Index holding loss)/(Valid number of shares with claims, Average buying price of the index)

The weighted average decline of individual stocks = (Individual stock selling loss, Index holding loss)/(Valid Average purchase price of the number of claimed shares)

So far, each investor’s investment losses due to Kangmei Pharmaceutical’s false statements can be calculated.

Composition and total losses of 52,037 investors with investment losses

According to Article 18 of the Supreme Court's "Several Provisions", if an investor has the following circumstances, the People's Court shall determine that the statement is false There is a causal relationship with the damage result: (1) The investor invested in securities directly related to the false statement; (2) The investor purchased the securities on and after the date of the false statement, and before the date of disclosure or correction. ; (3) The investor suffers a loss from selling the security on or after the date when the false statement is revealed or corrected, or suffers a loss from continuing to hold the security.

Article 20 The date on which a false statement is made as referred to in these regulations refers to the day on which the false statement is made or occurs. According to the "Administrative Penalty Decision" ([2021] No. 11) issued by the China Securities Regulatory Commission, Kangmei Pharmaceutical released its 2016 annual report on April 30, 2017. This time, there were false records such as inflated income and inflated monetary funds. Therefore, April 30, 2017 was determined as the day when the false statement was committed.

Based on this standard, ***55,335 investors meet the standard of causality between false statements and damage results, but 9 investors submitted written statements stating that they would withdraw from the special representative litigation. Therefore, the Investment Service Center was authorized by 55,326 investors to conduct special representative litigation.

However, according to the calculation method of the impact ratio of securities market risk factors of the insurance fund, the weighted average decline of the individual stocks of Kangmei Pharmaceutical purchased by 3289 investors was less than the weighted average decline of the Medical and Biological (Shenwan) Index, that is After deducting market systemic risk factors, the 3,289 investors achieved positive returns, which should be deducted from investors with investment losses.

Finally, 52,037 investors with investment losses were identified, with a total total loss of 2,458,928,544 yuan.