A new normal is taking shape in China's capital markets, where the responsibilities of market "gatekeepers" are being increasingly enforced, making it standard practice for intermediaries to bear joint liability. Recently, Kangni Mechanical & Electrical disclosed the final appeal ruling in a securities misrepresentation dispute, which reversed a previous decision requiring no compensation, ordering the company to pay 99.8 million yuan. The brokerage and audit firm are now jointly liable within 50% and 40% ranges, respectively.

On August 10, Kangni Mechanical & Electrical (603111.SH) reported the outcomes of two securities misrepresentation dispute cases. One case was upheld, while the other was overturned on appeal. In the revised ruling, the Jiangsu Provincial High People's Court ordered Kangni Mechanical & Electrical to compensate investors for losses totaling 99.8 million yuan. Guotai Haituan (601211.SH) and Suya Jincheng Certified Public Accountants (Special General Partnership) (Suya Jincheng) are jointly liable within 50% and 40% of the compensation amount, respectively. This appeal decision is final.

According to Kangni's initial ruling from July 2025, the case was brought by an institutional investor seeking 192 million yuan in damages. The Nanjing Intermediate People's Court originally ruled that Kangni owed no compensation. The dispute originates from a 2016 acquisition plan, where Kangni agreed to purchase Guangdong Longxin Technology Co., Ltd. (Longxin Technology), finalizing the deal in December 2017. The China Securities Regulatory Commission (CSRC) found that Longxin Technology inflated revenue and profits between 2015 and 2017, making the merger report issued by Kangni false. For example, Longxin recognized revenue through fake invoices or without invoices, overstating income by 144.1 million yuan, 306.5 million yuan, and 96.1 million yuan for 2015, 2016, and the first half of 2017, respectively, representing 22.02%, 30.09%, and 21.51% of its total revenue. In this major asset restructuring, Guotai Haituan (formerly Guotai Junan) acted as the independent financial advisor, while Suya Jincheng issued unqualified audit opinions for Longxin's financial statements for 2015, 2016, and the first half of 2017.

Following the CSRC's verification of the violations, 17 investors filed claims against Kangni, seeking a total of 383 million yuan. The initial court ruling required Kangni to cover 83.1 million yuan in losses and court fees. The latest announcement shows Kangni has fulfilled compensation to nine ordinary investors and three institutional investors, with one institutional investor receiving no compensation and another set to be paid soon. Claims from three remaining individual investors are still in the appeal process. Beyond these 17 cases, Kangni has set aside 216 million yuan as of July 2025 for potential losses from unresolved investor disputes, with partial payments made to investors who agreed to settlements.

The trend of holding intermediaries accountable is solidifying, with brokerages and auditors now frequently facing joint liability in securities misrepresentation cases. For example, in March 2026, a court in the Hongxiang Co., Ltd. (300427.SZ) case ruled that the company must cover all reasonable investor losses, while Rongcheng Certified Public Accountants (Special General Partnership) (Rongcheng) is jointly liable for 25%. The Xiamen CSRC bureau found that Hongxiang's annual reports from 2017 to 2022 contained false statements, and Rongcheng had issued unqualified audit opinions for the 2019 to 2021 reports. In October 2025, the Xiamen bureau fined Rongcheng 6.23 million yuan in business income and 16.83 million yuan in penalties.

Additionally, Zhonghua Certified Public Accountants (Special General Partnership) (Zhonghua) is being sued for joint liability in cases involving Youfu Co., Ltd. (002427.SZ) and Tianwo Technology Co., Ltd. (002564.SZ). Zhonghua, as the auditor for Youfu's 2016 annual report, issued an unqualified opinion, but the report failed to disclose 730 million yuan in new external guarantees. In September 2020, the Zhejiang CSRC bureau issued a warning letter to Zhonghua and two signing accountants. Between 2017 and 2021, Tianwo Technology manipulated project progress to adjust revenue and profits, leading to false annual reports, and failed to disclose related-party transactions. Zhonghua, as the auditor for those years, issued unqualified opinions. In January 2025, the CSRC fined Zhonghua 7.88 million yuan in business income and 11.82 million yuan in penalties.

In a related case, the court ruled that former controlling shareholder of Kangmei Pharmaceutical (600518.SH), Ma Xingtian, and his spouse, former deputy general manager Xu Dongjin, must pay 1.4 billion yuan in compensation to the company. Additionally, Guangdong Zhengzhong Zhujiang Certified Public Accountants (Special General Partnership) (Zhengzhong Zhujiang) is liable for 141 million yuan in supplemental compensation. The CSRC found that Zhengzhong Zhujiang's audit reports for Kangmei from 2016 to 2018 contained false statements, leading to a fine of 14.25 million yuan in business income and 42.75 million yuan in penalties in February 2021.