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China's first foreign-related lawsuit against listed companies for compensation was filed last Saturday by the Shenyang Intermediate People's Court in Northeast China's Liaoning Province. This is the first time a B share company has been sued on the Chinese mainland by stockholders for civil compensation. The defendants include one of the world's major accounting firms, KPMG, which audited the company. The plaintiffs held the Shanghai-listed Jinzhou Port B shares, promoted in an annual report found to contain false information. Xu Qian, one of the plaintiffs, claimed that she had been misled by the share prospectus and lost US$1,880 when she invested in the stock. Also in Northeast China, the Harbin Intermediate People's Court filed a joint lawsuit in which 107 investors sued the Shanghai-listed Daqing Lianyi for fraudulent information disclosure. "We have been waiting for that for a whole year," said Xuan Weihua, a lawyer for the plaintiffs with the Grandall Legal Group's Shanghai Office. Last March, as many as 679 stockholders in Daqing Lianyi, an oil refiner and petrol products supplier in Heilongjiang Province, filed a collective lawsuit against the company. But the case stalled due to judicial uncertainty over collective suits involving securities fraud. Some of the investors gave up waiting and others lost their contacts. But a long-awaited judicial interpretation issued by the Supreme People's Court early this year restored hope to tens of thousands of desperate stockholders who lost money due to false or misleading information. The 37-clause document, which came into effect on February 1, for the first time defined the losses for stock investors and outlined how to calculate relative civil compensation. It stated that those who release fraudulent information can be forced to pay compensation for shares bought after that date, becoming liable for economic losses incurred before the fraud is disclosed or corrected. The interpretation also stipulated that investors can launch collective civil suits, in which a number of plaintiffs jointly sue a company through a few representatives. A judicial interpretation by the Supreme People's Court is regarded as a quasi law in China, providing guidance to lower level courts. After the new legal document cut through the policy uncertainty, the 107 Daqing Lianyi stock holders again joined forces to relaunch their collective suit, which was finally accepted by the local court last week. This time, they asked for more than 3 million yuan (US$363,000) in compensation for their losses from stock investment in the company. Other 300-plus investors are expected to join the group by the middle of this month and their claim for redress is expected to reach 10 million yuan (US$1.2 million), said lawyer Xuan. Elsewhere, in Qingdao of East China's Shandong Province, a similar case was accepted by the local court, in which seven plaintiffs collectively sued the Yantai-based Dongfang Electronic Information Company for fraud, demanding compensation of 370,000 yuan (US$45,000). Together with insider-trading and price-rigging cases, trials of civil compensation cases caused by fraudulent information disclosure were suspended by the Supreme People's Court in September 2001. That suspension was lifted in January last year when the court issued its interpretation setting out the basic guidelines for trying these cases. And the second judicial interpretation, issued on January 9 this year, gave further clarification. Since January 2002, Chinese courts have accepted about 900 such cases, so far, most are still either in limbo or are presently being tried. Legal experts believe the new judicial interpretation provides fundamental guidelines for judges when hearing such cases and will shorten trials. While the changes have given new hope to stock investors, the reform is just a beginning and much still needs to be done, experts say. Many aspects of securities fraud are still not addressed. For example, disputes continue over the exact dates applied to calculate losses and compensation. Under the present method, most investors are still unable to recover all their losses. And apart from false information disclosure, civil suits still cannot cover losses arising from irregularities such as insider-trading and price-rigging.