Sou Hu Cai Jing·2025-10-10 01:19Core Viewpoint - The new judicial interpretation by the Supreme People's Court aims to hold executives of listed companies accountable for financial fraud by requiring them to return excessive compensation and stock incentives that do not match the company's actual performance [1][2][9] Group 1: Legal Framework and Implications - The new regulation provides a legal basis for companies to reclaim unjust gains from executives when financial reports contain false information [2][4] - It addresses a significant gap in the current legal system, which previously focused mainly on administrative penalties without effectively recovering personal gains from fraudulent activities [2][4] - The regulation is expected to deter executives from committing fraud by increasing the personal cost associated with such actions [4][9] Group 2: Historical Context and Case Studies - Between 2020 and 2023, over 200 listed companies were investigated by the China Securities Regulatory Commission (CSRC), with approximately 30% of these cases involving financial fraud [4] - Notable cases, such as that of Kangmei Pharmaceutical, illustrate how executives manipulated financial data to meet performance targets, leading to significant personal gains through stock incentives [5] - The case of Evergrande's former president, who received exorbitant salaries while overseeing fraudulent financial practices, highlights the need for stricter accountability measures [6][7] Group 3: Challenges and Future Directions - The implementation of the new regulation may face challenges in defining what constitutes "inconsistent" compensation and determining "reasonable standards" for executive pay [8][11] - There is a need for detailed guidelines from regulatory bodies to ensure consistent application of the new rules across different industries and company sizes [8] - The regulation is a step towards creating a healthier market environment by establishing a cycle of accountability and discouraging fraudulent behavior [9][11]