Taihe · Listed Company Securities Compliance Column | “Presumption” in Administrative Penalties for Insider Trading: A Regulatory Tool or a Reversal of the Burden of Proof? — Examining the Application and Boundaries of Presumption Rules Through Case Law Involving Entry into the Market
Release Date:
2026-09-24
The high-quality development of the capital market hinges on the compliance foundation of listed companies. As the registration-based system is fully implemented and regulatory frameworks are iteratively refined, securities compliance has become a central pillar for the stable operation of listed firms. Accurately aligning with regulatory guidance and fortifying compliance safeguards are critical enablers for enterprises to navigate market cycles.
To this end, we have established this dedicated column, focusing on the core areas of securities compliance for listed companies: summarizing the key points of new regulatory rules, deconstructing the rationale behind typical enforcement actions, dissecting the essence of court rulings, and thoroughly examining the practical challenges of compliance. Adopting a legal‑professional perspective, we employ clear, pragmatic language and scenario‑based analysis to interpret compliance requirements, map out risk pathways, and provide actionable guidance, helping companies strengthen their internal control systems, mitigate compliance risks, and enhance the effectiveness of their compliance management.
When compliance thrives, enterprises thrive; when compliance is stable, development is stable. We hope this column will serve as a trusted partner for listed companies—helping them discern regulatory trends, address compliance challenges, mitigate compliance risks, and strengthen the foundations of sustainable growth—so that together we can foster the sound and healthy development of the capital market.
Introduction: A single phone call, a full‑position buy—then what?
Imagine this scenario: You have a phone call with an insider involved in a listed company’s restructuring project. Within days, you liquidate all your holdings and go all‑in on another stock. A few weeks later, that stock is suspended from trading pending the restructuring. Subsequently, you receive an administrative penalty decision from the China Securities Regulatory Commission, which finds that you engaged in insider trading. Later still, the case is referred to the public security authorities.
Throughout the entire process, no one has ever substantiated what was actually said on that phone call.
This is not speculation but the actual trajectory of numerous insider‑trading cases. Insider trading occurs in a highly opaque, technologically sophisticated public‑market environment, where perpetrators often cloak their true trading intentions behind ostensibly legitimate pretexts such as “investment judgment” or “market analysis.” As a result, regulatory authorities can scarcely obtain direct evidence—such as “I did, in fact, disclose inside information to him.” As the summary of the judgment in Case No. 2024‑04‑1‑120‑002, “Ma Mouwen’s Insider‑Trading Case,” held in the Supreme People’s Court’s Case Database, makes clear, insider‑trading offenses are characterized by extreme concealment, a scarcity of direct evidence, and substantial difficulties in establishing proof.
Accordingly, “presumption” has become the central method for establishing facts in such cases. However, this raises a crucial question: How far may presumption extend? Does it mean that “as long as you cannot produce evidence, I will presume that you are at fault”? And does this approach exceed the conventional standard in administrative penalties, under which the administrative authority is ordinarily required to bear the burden of proof?
Drawing on the insider‑trading cases included in the Supreme People’s Court’s Case Database, this paper elucidates the operational logic of presumptive rules, examines their shortcomings and limitations in application, and offers practical guidance for their proper implementation.
I. What is “Presumption” in Insider Trading Cases?
In legal terms, a “presumption” refers to the determination, in accordance with the law, that a fact to be proved has been established when the underlying facts have been proven, unless the opposing party produces evidence sufficient to rebut it. In the context of insider trading, the normative basis primarily comprises three elements:
First, at the level of judicial policy: The Supreme People’s Court’s “Minutes of the Symposium on Several Issues Concerning Evidence in the Adjudication of Securities Administrative Penalty Cases” (Fa Fa [2011] No. 225) explicitly provides that if evidence submitted by the regulatory authority establishes one of certain specified circumstances—such as communication or contact with an insider prior to the disclosure of inside information, or if the party’s securities trading activities are highly consistent with the inside information—and the penalized party is unable to offer a reasonable explanation or furnish evidence to rebut the inference that they engaged in trading based on such inside information, the people’s court may uphold the administrative penalty decision finding that insider trading has occurred. This is widely regarded as the direct legal basis for applying the presumption of fact at the administrative penalty stage.
Second, at the level of enforcement rules: The China Securities Regulatory Commission’s “Guidance on the Identification of Insider Trading in the Securities Market (Trial)” has pioneered an approach to determination whereby it is not necessary to prove whether or not the individual actually knew the inside information; rather, the determination hinges on the person’s status, the parties with whom they have been in contact, and the degree of abnormality in their trading activities—collectively, these factors suffice to establish insider trading.
Third, at the criminal justice level: Article 2 of the “Interpretation by the Supreme People’s Court and the Supreme People’s Procuratorate on Several Issues Concerning the Specific Application of Law in Handling Criminal Cases of Insider Trading and Disclosure of Insider Information” (Fa Shi [2012] No. 6, as amended in 2026) specifies the scope of persons who shall be deemed to fall within the category of “persons who illegally obtain inside information on securities or futures trading” as stipulated in Article 180, Paragraph 1 of the Criminal Law. Article 3 provides that the “related trading activities that are obviously abnormal” referred to in Items 2 and 3 of Article 2 of this Interpretation must be determined comprehensively, taking into account such factors as the degree of temporal coincidence, the extent of deviation from normal trading patterns, and the degree of vested interest.
Such cases follow a two‑step evidentiary framework: first, the regulatory authority establishes the underlying facts—namely, contact or communication and abnormal trading activity—and then the party concerned submits rebuttal evidence to demonstrate a legitimate justification or an appropriate source of information. This structure is widely adopted in both administrative enforcement and criminal justice proceedings.
II. How the Presumption Is Applied: Four Typical Scenarios in Case Law Involving Entry into the Database
(1) Determination of communication and contact: Only “realistic possibility” is required; the content of the telephone call is irrelevant.
In the case of “Insider Trading Involving Beijing某 Development Group Co., Ltd. and Li Moumou” (Case Registration No.: 2024-03-1-120-002), the court held clearly that, with respect to illicit acquisition of inside information through communication or contact, it is sufficient to establish that the actor engaged in such communication or contact with an insider, thereby rendering the illicit acquisition of inside information realistically possible; it is not necessary to determine precisely when, under what circumstances, or by what means the inside information was transmitted.
In this case, the defendant entity maintained frequent business dealings with the company of the insider during the sensitive period for inside information. Li, the individual in question, twice signed cooperation agreements on behalf of both parties, kept WeChat messages sent by the insider, and the three individuals held face-to-face meetings regarding their collaboration. Meanwhile, within two weeks of the sensitive period, the defendant entity sold all its other holdings and concentrated on purchasing shares of a company that had posted losses for two consecutive years and was left with little more than a shell‑company status. Furthermore, prior to the CSRC’s investigation, the entity engaged in suspicious conduct, such as concealing trading computers. The defendant argued that its trades were based on publicly available information obtained at a big‑data conference; however, the conference took place one and a half months before the decision to buy, leaving no plausible explanation, and this defense was rejected. Ultimately, the entity was fined RMB 300,000, and the directly responsible senior executive, Li, was sentenced to three years’ imprisonment.
It is noteworthy that, in this case, the court explicitly employed the phrase “under the application of the presumption rule,” thereby elevating presumption from a customary enforcement practice to an expressly articulated method of fact-finding in judicial opinions.
(2) Close associates: Even if obtained passively, it is still presumed that you have “illegally obtained” it.
In the “Gu insider‑trading case” (case registration number: 2023‑04‑1‑120‑001), Gu had known the person privy to inside information for many years and maintained a lending‑and‑borrowing relationship with that individual. The court determined that Gu fell within the category of “persons closely connected” and emphasized that, whether the inside information is obtained voluntarily or passively, such acquisition constitutes unlawful access to inside information. Gu purchased related shares worth over RMB 7.66 million and realized profits exceeding RMB 1.26 million, for which he was sentenced to five years’ imprisonment. This means that, for “insiders,” the presumption applies even when the information is “delivered right to their doorstep.”
(3) The process of elimination: systematically rule out all other sources of information; whatever remains is the correct answer.
The case that most vividly illustrates the extreme application of presumptive reasoning is “Wang and Li Insider Trading Case” (Case Registration No.: 2023-03-1-120-002). In this case, both the insider, Wang, and the trader, Li, denied disclosing or obtaining inside information. The court’s line of reasoning proceeded as follows: there were only four possible sources of the information that enabled Li to purchase the stock—personal analysis, a leak from Qian Moufang at a securities firm, a leak from Fan Moucheng, or a leak from Wang—and each was systematically ruled out. Personal analysis failed to account for the decisiveness and abnormality of the purchase; the securities firm was not involved in the restructuring at that stage, and its own personnel considered the backdoor listing to have fallen through; moreover, Li and Fan Moucheng were not acquainted, making a leak from the latter “neither supported by evidence nor plausibly reasonable.” Having eliminated the first three possibilities, the sole remaining source was identified as Wang.
Supporting this exclusion is a minute-by-minute timeline: at 8:21 a.m. on December 29, 2015, Wang called Li; at 8:40 a.m., Li returned the call; at 9:31 a.m., Li liquidated all other shares he held at a loss; and starting at 9:34 a.m., he began making successive purchases of the securities involved. On this basis, the court found that the two individuals had engaged in insider trading and sentenced each to five years’ imprisonment.
This mode of reasoning, which “excludes all other possibilities,” closely resembles the “beyond a reasonable doubt” standard in criminal proof. This is also the most contentious aspect in practice: when both sides deny the facts, the presumption effectively assumes the burden of proving the core factual issue of “information transmission,” a task that should properly rest with the prosecution.
(4) The Three Dimensions of “Clearly Abnormal Transactions”
Another cornerstone of the presumption is the abnormality of trading behavior. The “Zhao Moumei and Liu Moubin Insider Trading Case” (Case Registration No.: 2025-03-1-120-001) distills this into three representative dimensions: First, in terms of temporal coincidence, the insider learned of the information on March 31 and disclosed it to his wife on April 1, yet the defendant began making large‑scale purchases as early as April 3; second, regarding the degree of trading divergence, the defendant had never previously paid attention to this small‑cap stock but suddenly liquidated all other holdings, went all‑in on it, left no margin for additional positions, and even borrowed over RMB 1.2 million to further increase his stake; third, in terms of the degree of interest linkage, multiple accounts used in the actual trading were all controlled by the defendant, while the nominal holders of these accounts “did not understand stock trading and had never engaged in it.” These three dimensions precisely reflect the application of the framework set forth in Article 3 of the judicial interpretation—namely, “temporal coincidence, trading divergence, and interest linkage”—to a specific case.
III. Four “Defects” in the Application of the Presumption Rule
Presumption is indeed necessary in practice; however, as evidenced by the aforementioned cases and law‑enforcement experience, the issues arising in its application should not be overlooked.
(1) “One-Step Transfer”: Administrative Presumption of Automatic Referral to Criminal Proceedings
There is an inherent difference in the standards of proof between administrative violations and criminal offenses. In practice, the former typically relies on a preponderance of the evidence standard, whereas the latter must meet the “beyond a reasonable doubt” threshold. However, in insider‑trading cases, administrative and criminal proceedings are closely coordinated; the presumptive reasoning employed in administrative enforcement often carries over directly into the criminal process upon referral of the case.
This is particularly evident in case‑inclusion examples: in the “Xu Moukun insider trading case” (case registration number: 2024‑03‑1‑120‑001), Xu Moukun was first fined RMB 600,000 by the CSRC and subsequently convicted of insider trading, with the fine legally offset; in the “Ma Mouwen insider trading case,” the party was first subject to an administrative penalty by the Beijing Securities Regulatory Bureau, ordered to return illicit gains and pay a fine, and then sentenced to six years’ imprisonment; and the “Beijing某 Development Group case” serves as a quintessential example of the sequence—administrative sanction first, referral second, and criminal conviction third. While the “relay” between administrative and criminal determinations is not inherently objectionable, if the criminal proceedings uncritically adopt the presumptive conclusions reached at the administrative stage without substantive review, such presumption may shift from easing the burden of administrative enforcement to lowering the threshold for criminal conviction, thereby creating tension with the principle of presumption of innocence.
(II) Substantive Reversal of the Burden of Proof
Article 40 of the Administrative Penalty Law explicitly stipulates that administrative organs must ascertain the facts; where the unlawful facts are unclear or the evidence is insufficient, no administrative penalty may be imposed. In other words, the burden of proof for administrative penalties rests, in principle, with the administrative organ. However, under a presumptive framework, the actual operational logic has shifted: once the regulatory authority establishes the underlying facts—namely, “contact and communication” coupled with “abnormal trading”—the party concerned, if unable to demonstrate a legitimate source of information, is deemed to have engaged in insider trading. Consequently, the adverse consequences of failing to prove one’s case are shifted from the administrative organ to the party itself. While this approach offers practical justification for overcoming evidentiary challenges, its boundaries must be carefully delineated. Presumptions should serve only to ease the regulatory burden of proof, rather than constituting a wholesale reallocation of the burden of proof.
(3) The threshold for presenting rebuttal evidence has been substantially raised.
Alongside the reversal of the burden of proof comes the issue of the threshold for rebuttal. From a normative standpoint, a party’s rebuttal need only satisfy the requirements of “providing a reasonable explanation” and “offering evidence to exclude the presumption” in order to undermine it; however, in practice, the determination of whether there is “no legitimate reason or legitimate source of information” is often extremely stringent. In a case involving a development group in Beijing, the defendant organization advanced an argument regarding the source of meeting‑related information, but this was rejected solely on the grounds that “the time gap was considerable and could not be reasonably explained.” In practice, the standard for rebuttal tends to be raised to that of preponderant evidence, or even higher. The very legitimacy of a presumption lies in its rebuttability; if the bar for rebuttal is set so high that it is, in effect, unattainable, the presumption degenerates into an “irrefutable finding.”
(4) The Absence of the “Utilization” Element: The Risk of Sliding Toward Objective Criminal Liability
Article 50 of the Securities Law stipulates that “it is prohibited to engage in securities trading activities by utilizing inside information,” whereas Article 180 of the Criminal Law merely requires that, “before the information is made public, one must purchase or sell the relevant security.” In administrative standards, the presumption goes a step further by adding an additional element—“utilization”—that is not present in the criminal statute. This raises a concerning logical implication: as long as the combination of “knowledge plus abnormal trading” suffices to establish criminal liability, the “utilization” requirement is effectively rendered superfluous, creating a risk that the determination may drift toward objective imputation.
Imagine that you have already conducted thorough research on a particular stock and prepared a comprehensive investment research report, yet you happen to learn an inside piece of information. In such a scenario, is your trading considered “abuse” of that inside information, or is it based on your independent investment judgment?
IV. Recommendations for Practical Application
On the law enforcement and judicial fronts, we believe three red lines must be firmly upheld. First, the underlying facts must be thoroughly ascertained and verified, and a higher standard of proof must be applied. Presumptions may not be used to fill gaps in the underlying facts; whether contact occurred or whether a transaction is deemed abnormal must both be supported by a robust chain of evidence—this is the prerequisite for the legitimacy of any presumption. Second, presumption is not a shortcut to reaching a final decision. When a party raises a reasonable doubt, their rebuttal logic and evidence should be subject to substantive review; the burden of producing counter‑evidence need only suffice to “shake the presumption,” and it should not be construed as requiring the party to prove their innocence to a preponderance of the evidence or even to a higher standard. Third, the standard of proof should be graded between administrative penalties and criminal convictions. Administrative determinations based on presumptions must, upon entry into criminal proceedings, be re‑evaluated against the standard of proof beyond a reasonable doubt to prevent the practice of “presuming guilt throughout.”
To market participants—particularly the directors, supervisors, and senior management of listed companies, as well as the parties involved in restructuring projects and their inner circles— , our hint is: First, transactions conducted during sensitive periods must be “traceable.” Investment research reports, internal decision‑making records, and pre‑established written trading plans constitute the most effective evidence to rebut such claims. Second, transactions conducted after contacting or interacting with insiders should be handled with extreme caution. In practice, the mere juxtaposition of a call record with suspicious trading activity is sufficient to trigger a presumption, even if the conversation merely consisted of casual small talk. Third, rebuttal should be made as early as possible. The stages of administrative investigation—during which parties may present statements, defenses, and request hearings—represent the optimal window for mounting a rebuttal; do not wait until the case is transferred to criminal proceedings to respond passively. Case law indicates that “the time gap cannot be explained” and “a clear divergence from fundamental facts without any justification” are typical reasons for the failure of such rebuttals.
Conclusion
“Presumption” is an indispensable tool in the enforcement of insider‑trading laws. Without it, a substantial number of covert, information‑based violations would remain undetected and unprosecutable. However, while presumption may trigger the initiation of a determination, it should not serve as the final word in the review process. Its legitimacy ultimately hinges on three safeguards: solid underlying facts, genuinely open and effective channels for rebuttal, and a graduated standard of proof between administrative and criminal proceedings.
Where the boundaries of presumption lie, there lies the credibility of regulation.
Attorney Shi Qiao, Our practice areas include legal services for listed companies, legal advisory work for administrative agencies and state-owned enterprises, corporate compliance, complex commercial litigation, the design of supply-chain finance structures—including financial leasing and factoring—and associated risk mitigation, fund formation and equity investment, as well as non‑litigation and litigation services related to the recovery of distressed bank and construction‑related debts and their commercial resolution.
(This article reflects the author’s personal views and is intended solely for informational purposes; it does not constitute legal advice or an interpretation of the law by Taihe Law Firm. This disclaimer is hereby made.)
This article is published by Jiangsu Taihe Law Firm. The author is Jiangsu Taihe Law Firm, and the copyright belongs to the author. Please cite the original source when reprinting; violations will be prosecuted.
Follow us
Related News