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Comparative Analysis of Investor Compensation Mechanisms in Securities Fraud: China’s Advance Compensation System and The U.S. Fair Fund Regime

Author(s)

Yang Hu*

Affiliation(s)

Department of Economics, Colgate University, Hamilton, USA *Corresponding Author

Abstract

This article compares the advanced clearing system under Article 93 of the 2020 Securities Law with the fair fund system in the United States, and evaluates how each system can balance speed, legal certainty, transparency and deterrence while protecting investors. It uses comparative legal methods to analyze the two systems from a common perspective, including funding sources, payment triggers, ratings, loss methods, governance, transparency, review mechanisms, time and administrative costs. For the Chinese side, the research is conducted through Wanfu Shengke, Xintai Electric, and Amethystum matters, while for the United States side, the research is carried out through fair fund principle, distribution plan practice and post-Liu v. SEC framework. According to this study, the China model aims to provide early relief for liquidity and market stability, but it relies on negotiated distribution, so it tolerates greater uncertainty in the payer's identity, distribution share and procedural form. In contrast, the American model puts more emphasis on the transparency of negligence-based funds and formal allocation plans and procedures, but because funds are allocated only after implementation, requisition and administrative review, it usually produces slow compensation. The article not only describes these two compensation models, but also provides a clear comparison framework, which links this comparison with regulatory design and investor protection theory, and limits its reform suggestions to the range of feasible and source-supported adjustments based on existing legal and institutional practices.

Keywords

Securities Fraud; Investor Compensation; Advance Payment System; Disgorgement; Comparative Securities Regulation

References

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