DeHeng Successfully Defended Client in Securities Misrepresentation Case Based on “Materiality” Defense

2025-10-22

Recently, in a securities misrepresentation liability dispute case involving a listed company, represented by DeHeng lawyers, the Shanghai High People’s Court ultimately dismissed all claims of the appellants and upheld the original judgment, ruling that the alleged misrepresentation did not possess “materiality.” This case represents another successful defense by the DeHeng team on the key dispute concerning “materiality” in similar cases.

In this case, several investors claimed compensation for investment losses, alleging that accounting errors in the listed company’s financial statements led to inflated revenue and profits in its annual reports. During the first and second instance stages, DeHeng lawyers precisely invoked the proviso in Article 10 of the Judicial Interpretation on False Statements and, through an in-depth analysis of the case facts, clearly demonstrated that the information disclosure violations in question did not have a significant impact on the trading price or volume of the securities and therefore did not meet the “materiality” requirement.

The courts in both instances fully adopted the arguments presented by DeHeng lawyers. The judgments explicitly state that determining whether a misrepresentation is “material” requires independent and substantive review, with the core focus being whether it genuinely distorted the securities price. In this case, around the implementation date and correction date of the misrepresentation, the trading price and volume of the involved stock did not exhibit the typical characteristics of an “inducement-type” misrepresentation. Compared to market reactions to similar significant events during the same period, there was a lack of price sensitivity. Therefore, the court determined, according to the law, that the misrepresentation in question lacked “materiality.”