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What price will a person pay if he buy stocks in an illegal way and crazily enjoy 11 limit-ups? With the "Gaochun Ceramics Case", which is the first insider trading case in the China's capital market involving public officials two years ago, come to an end, the answer is revealed. In the morning of December 30, 2010, Nantong Intermediate People's Court in Jiangsu Province made a verdict after first trial the Gaochun Ceramics Insider Trading Case. Former director of the Nanjing Economic and Trade Commission Liu Baochun was sentenced to 5 years' imprisonment for insider trading, with his illegal income RMB 7.4995 million to be delivered to the state treasury , moreover, a fine of RMB 7.5 million was imposed to Liu, while his wife, Chen Qiaoling, is exempted from criminal punishment. It was exactly one year after Liu Baochun was confirmed arrested. According to the reporter's interview, though the insider trading was deemed as "particularly serious" and thus Liu was sentenced to 5 years imprisonment, he said that he may give up the opportunity to appeal. Utilize four accounts to seek profit of RMB 7.5 million. The case happened on May 22, 2009 which is not long ago. At that time, Gaochun Ceramics, a company that had suspended trade of stocks for a month, resumed the trade and announced the restructuring plan of equity acquisition, asset replacement and non-public offering of the No.14 Research Institute of China Electronics Technology Group (Hereinafter referred to as "the No.14 Research Institute"). The stock reached limit-up at RMB 8.13 before suspension. On that basis, another 10 limit-ups occurred to reach RMB 21 and stayed that for more than half a month. Later on July 16, the price was pulled up again and reached a new high of RMB 30.85. On November 23 of that year, the former director of the Nanjing Economic and Trade Commission Liu Baochun and his wife Chen Qiaoling was suspected because of involving in Gaochun Ceramics insider trading and detained for criminal reason. On December 30, more than one month later, Liu Baochun and his wife were officially arrested. According to the indictment information from the Prosecutor - Nantong City Procuratorate, between February and March of 2009, when Liu Baochun was contacting Gaochun Ceramics on assets restructuring, he disclosed the information to his wife Chen Qiaoling, who was working at Nanjing Securities Co., Ltd. and Chen bought 614 thousand of Gaochun Ceramic stocks from April 1 to 15, and sold all the stocks from May 22 to June 24 after resumption of trading. The illegal profit is about RMB 7.4995 million. Because Chen Qiaoling worked at Nanjing Securities, she could not open a securities account as a securities practitioners, she and her husband usually use Liu Ruhai, Fei Mangzhu and Liu Renmei's stock accounts for dealing; among them, Fei Mangzhu and Liu Ruhai are mother-child relationship, and Liu Renmei is Chen's Mother. These three stock accounts became Liu Baochun and his wife's' main accounts to buy Gaochun Ceramic stocks. In addition, Liu and his wife also borrowed Liu Rubing's stock account through Liu Ruhai to buy Gaochun Ceramic stocks. According to the data from Nanjing Securities, the commission from the accounts of Liu Ruhai, Liu Rubing and Fei Mangzhu were from Chen's computer in her office, and the commission of Liu Renmei's account was also from the same IP. According to Chen's confession, at about the end of March to the beginning of April, Liu Baochun, who was contacting with Gaochun Ceramics for restructuring, asked her to sell the stock of Nanjing Port and use all the money to buy the Gaochun Ceramics stock. Liu also said that, "the No.14 Research Institute will restructure Gaochun Ceramics, and the possibility for successful cooperation between two parties is high". Thus, Chen used the accounts of Liu Ruhai and Fei Mangzhu to buy 45,800 shares of Gaochun Ceramics stock through online commission with her computer in her office in Nanjing Securities on April 1, 7 and 8 of 2009, and bought 101,000 shares of Gaochun Ceramics stock with Liu Renmei's account in April 13. The total expense was RMB 391,200. But, Liu Baochun's desire seemed bigger. At the beginning of April 2009, he decided to borrow money from others to buy Gaochun Ceramics stock. Thus, on April 13 and 14, Chen Qiaoling borrowed RMB 3 million from Jiang, and bought 419,500 shares of Gaochun Ceramics stock through the accounts of Liu Ruhai and Liu Rubing; on April 15, Chen Qiaoling again bought 138,600 shares of Gaochun Ceramics stock with RMB 1 million borrowed from Xue by Liu Baochun. The borrower Jiang and Xue's testimony showed they received RMB 3.18 million and 1.06 million as repayment respectively. This means Liu Baochun and his wife paid 6 % of the loans for the two months. Of course, they gained a profit of about RMB 7 million through buying and selling Gaochun Ceramic stock with the money. On April 21, 2009, Gaochun Ceramic announced that the controlling shareholder of the company was planning a restructuring and the listed company would enter the material matter suspension. On November 12, 2009, Gaochun Ceramics announced the restructuring draft. Three companies including Gaochun Ceramics, the No.14 Research Institute which is the dealer and Nanjing Nriet Industrial Co., Ltd. which is the trading target company as well as 15 people in Qilu Securities Co., Ltd which is the intermediary bought and sold the stock of Gaochun Ceramics before and after the announcement. But, the people above expressed that they were “unaware” of the restructuring, and received related information through public channels, thus did not constitute the use of insider information for securities trading act. In fact, from the aspect of time, Liu Baochun’s case happened within two weeks after Gaochun Ceramics announced the results of self-examination. But restructure draft of the listed company did not mention this and was apparently to be blamed. According to Chen Qiaoling's confession, during April and May of 2009 when Gaochun Ceramics enter the reconstruction and suspension stage, Liu Baochun aware that there may be problems in his act and asked Liu Ruhai and Liu Rubing to sell all the Gaochun Ceramics stock after the resumption of trading; and during the investigation of CSRC, Liu Baochun and his wife "discussed the issue of cheating in the investigation of CSRC" with Liu Ruhai, Liu Rubing and other two borrowers. The statistics from the Shanghai Stock Exchange showed that, from May 22 to June 24 in 2009, four accounts holding Gaochun Ceramics stock controlled by Liu Baochun and his wife, including Liu Ruhai's account, were sold out. The amount of revenue is RMB 11.8907 million while the total profit after reducing the cost is RMB 7.4995 million. Take Liu Ruhai's account as an example, the time of opening a position were 8, 13, 14 and 15 in April. Among them, the fund sources of the latter two are loans. Maybe it is because Liu Ruhai aware of the "problems" in buying the stock, Liu Ruhai's account began to gradually sell out from the first trading day of resumption of Gaochun Ceramics which is May 22. During this process, 7700 share were sold on May 22, 5600 and 17500 shares were sold on 25 and 26 respectively, and 5800 and 14000 shares are sold on June 3 and 4 respectively. The share price before the process had always been closed at daily limit. And the remaining stocks were sold between June 5 and 24. Controversy between Charge and Defense According to the prosecutor's allegations, Liu Baochun, as the personnel with inside information, carried out collusion with the accused Chen Qiaoling, used this information for stocks trading in this sensitive period. For a severe violation, and the behavior of the two defendants constituted the crime of insider trading. Liu Baochun argued that he was only the contacts for Gaochun Ceramics restructuring talks between the No.14 Research Institute and Gaochun County Government, and had no idea of the process of talks and whether the talk will be successful, thus he was not an insider. Meanwhile, Liu Baochun believes that be bought Gaochun Ceramics stock before inside information was created, thus he didn't use the inside information; and he brought the stock "without realizing that his behavior commits the crime of insider trading". Zhou Yuzheng and Liu Wei, the lawyers from Jiangsu Sanfa Law Office who were the defense lawyers of Liu Baochun, believed that Liu Baochun, who was a public servant in government organizations, was not a subject of crime for insider trading charges. Their basis was from Article 180 of Criminal Law that "The scope of insider information, informed personnel shall be determined by regulations in laws and administrative regulations". In fact, in the current legislation, only the "Securities Act" Article 74 has the relevant regulations. However, according to relevant provisions, the public servant can only be "the other people stipulated by securities regulatory authority under the State Council". But in Measures for Administration of Material Assets Reorganization of Listed Companies Article 39 stipulated by CSRC, direct participants of the restructuring, regulators of the Securities Industry, institutions and personnel providing securities intermediary services are informed staff of insider information and the public servant in government organizations is not among them. Before hearing of Liu Baochun's case, on June 24, 2010, the China Securities Journal said that the "state functionary" is to be listed in the range of "informed staff". Thus the defense lawyer believed that "Liu Baochun, the defendant, only acted as a medium in the restructuring process, and did not participate in planning, demonstration, decision making, examination and approval and other process, thus can no t be regard as a subject of insider trading". And to regard Liu Baochun as an informed staff, the CSRC should have universal regulations as a basis, rather than through individual "certification" approaches. Meanwhile the defense lawyers believed that the from the view of subject, specific inside situation and the time of information generation, the information known by Liu Baochun are not necessarily the insider information in the law. Focus of controversy is that the defense lawyer though the No.14 Research Institute and Gaochun County Government did not express the agreement on cooperation on March 6, 2009. Thus the price sensitive period of insider information should be April 19 after the agreement was signed. However, it was directly determined in a Letter of Affirmation concerning Liu Baochun and others' suspicion of insider transaction and disclosure of inside information issued by CSRC on March 17, 2010 that "the price sensitive period of the inside information ranged from March 6 to April 20, 2009". Due to application of investigation authority, CSRC supplemented the affirmation for Liu Baochun case on April 22: based on reconfirmation of Liu Baochun as the contact of Nanjing Municipal Government for Gaochun Ceramics restructuring, Liu Baochun was officially decided as "the insider to the inside information of security transaction under Article 74 of Security Act". Although the defense attorney said the legality of this supplementary evidence was not approved by the court, the judgment was made based on this supplement and the prosecutors' affirmation of Liu Baochun as an insider to the inside information was accepted by the court. The court believed the cooperation framework formed on March 6, 2009 was the first documentation of the inside information. Although the documents were amended and improved several times since then, the inside story of the state-owned shares transferred by No.14 Research Institute as the Top 1 shareholder and actual control was held back all the time, namely, the overall idea of back-door listing achieved by No.14 Research Institute's restructuring of Gaochun Ceramics was determined from the beginning. That Liu Baochun bought shares of Gaochun Ceramics in the price sensitive period at large amount proved that he was an insider of the inside story. For this judgment, Zhou Yuzheng, defense attorney, believed that if it was acceptable for security authority to impose administrative penalty on relevant default subject on presumptive basis, the People's Court would breach criminal justice codes when "Criminal Law of the People's Republic of China" had explicit provision of "presumption of innocence" by affirming Liu Baochun's crime by presumption (the term used by a relevant leader of CSRC when reviewed by a reporter). In addition, the defense attorney raised an objection against the eligibility of such units as SSE as witnesses, but the court did not accept it. Ultimately, the court found Liu Baochun and Chen Qiaoling's acts constitute the crime of insider trading. In the joint offense, Liu Baochun, who played a major role, was the principal offender and shall bear the responsibility for the whole case; and Chen Qiaoling, who is the accessory, shall be given a lighter or mitigated punishment or be exempted from punishment according to the law. In view of the two are first-time and occasional offenders who handover all the money after the incident while having a good attitude to plead guilty during the hearing, they shall be dealt with leniently: Liu Baochun was sentenced to 5 years with a fine of RMB 7.5 million, and Chen Qiaoling was exempted from criminal punishment.