Proportional Joint and Several Liability of Auditing Institutions in Securities Misrepresentation Civil Compensation Cases

DOI: https://doi.org/10.62517/jel.202614205

Author(s)

Xiyang Li

Affiliation(s)

School of Law, Central University of Finance and Economics, Beijing, China

Abstract

In civil compensation cases involving securities misrepresentation, the proportional joint and several liability of auditing institutions lacks a uniform standard of determination, resulting in vastly divergent adjudicative outcomes. Although existing regulations distinguish between intentional and negligent fault, there remain significant regulatory gaps in three critical areas: the criteria for differentiating between intent and negligence, the internal classification of degrees of negligence, and the benchmark for determining liability proportions. Judicial practice, as exemplified by the Huaze Cobalt-Nickel case, the Kangmei Pharmaceutical case, and the Zhong’anke case, reveals that the structural causes of inconsistent adjudication lie in the absence of uniform standards for fault characterization, uniform methods for proportion determination, and uniform guidance on value orientation. Drawing on a comparative study of the U.S. Private Securities Litigation Reform Act (PSLRA) and Australia’s CLERP 9, this article proposes a dual liability structure of “full joint and several liability—proportional joint and several liability” demarcated by the auditing institution’s subjective state of mind; a four-dimensional framework for proportion determination encompassing the degree of fault, the relevance of misrepresentation content, the impact on investor decision-making, and the auditing institution’s compliance efforts; and institutional safeguards consisting of third-party professional assistance in adjudication and mandatory professional liability insurance, thereby providing an operationalizable rule-based pathway for the determination of proportional joint and several liability.

Keywords

Securities Misrepresentation; Auditing Institutions; Proportional Joint and Several Liability; Fault Determination; Investor Protection

References

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