With respect to civil liability provided inthe Securities and Exchange Act for damages resulting from false financialreports, in the past, the Taiwan Supreme Court has cited the"fraud-on-the-market theory" from the Basic Inc. v. Levinson case in theUS to establish a presumption of a causal relationship between investors' tradingbehavior and false financial reports, or calculated damages by using Section21D(e) of the US Exchange Act of 1934. However, following Taiwan SupremeCourt's Civil Judgment 111-Tai-Shang-Zi No. 21, such references to US laws areno longer directly applicable, analogous, or citable as legal basis forinterpreting Taiwan laws.

In its Civil Judgment 111-Tai-Shang-Zi No.21, Taiwan Supreme Court clearly states that "…Paragraph 2 of Article 20and Article 20-1 of the Securities and Exchange Act as amended in 2006 werelegislative policy choices made in response to material damages caused bymarket fraud cases. They should not be deemed to have been formulated withreference to the provisions of the US Exchange Act, and should be handled in accordancewith the relevant provisions of Taiwan's law regarding the liability of damages.If the Securities and Exchange Act does not specifically regulate thecompensation for damages resulting from false financial reports, the generalprovisions of tort law in the Civil Code should be applied, including Article213 on compensation for damages and the principle of the restoration of thestatus quo ante. As for the allocation of burden of proof, it shall bedetermined in accordance with Article 277 of the Code of Civil Procedure."

Based on Taiwan Supreme Court's latestinterpretation above, the liability of the compensation for damages resultingfrom false financial reports may no longer cite US securities law orprecedents. Instead, relevant provisions of Taiwan's law regarding theliability of damages should be applied. As for its causal relationship with trading,the court may still reduce the burden of proof on the investor pursuant to theproviso of Article 277 of the Code of Civil Procedure. However, when it comesto causal relationship and calculation of damages, market factors that are notattributable to the false financial report perpetrator should be excluded, andthe investor should be restored to their rightful state. If the investor isalso at fault for the expansion of damages, Article 217 of the Civil Code maybe applied to reduce or exempt the amount of compensation.

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