The Supreme People's Court and the Supreme People's Procuratorate: Continue to increase the punishment of private equity fund crimes

According to the official WeChat news of the Supreme People's Court, private equity funds, as an organic part of the mainland's multi-level capital market, have played an important role in promoting the formation of equity capital, effectively serving the real economy, giving full play to investment functions, and boosting economic development and venture capital. At the same time of rapid development, there have also been cases of illegal fund-raising in the name of "private equity funds", and private fund managers have misappropriated and embezzled private fund assets, and committed commercial bribery and other illegal and criminal acts in the operation of private equity funds, affecting the standardized and healthy development of the private fund industry.

In order to effectively crack down on all kinds of private fund criminal activities and give full play to the functional role of private funds in serving the real economy and promoting scientific and technological innovation, the Supreme People's Court and the Supreme People's Procuratorate jointly selected five typical cases from the private fund crime cases handled across the country and released them. The person in charge of the Third Criminal Trial Division of the Supreme People's Court and the Fourth Procuratorate of the Supreme People's Procuratorate responded to reporters' concerns on relevant issues.

Q: What are the characteristics of these typical cases of private equity crimes?

A: After careful screening and full communication between the Supreme People's Court and the Supreme People's Procuratorate, five typical cases with bright spots and guiding significance in terms of case handling and application of law have been selected from the private equity fund crime cases that have taken effect in recent years. This batch of typical cases has the following characteristics:

The first is to demonstrate the attitude of severely punishing private equity fund crimes in accordance with the law and protecting the legitimate rights and interests of investors. In the five typical cases, some of them prosecuted the suspects of fund-raising fraud in accordance with the law through case filing and supervision, some of them effectively proved the crimes of misappropriation and embezzlement in the complex operation of private equity funds through the comprehensive use of circumstantial evidence, and some actively recovered stolen goods and redressed losses, preventing criminals from obtaining any economic benefits. In each case, a punishment commensurate with the crime was given in accordance with law on the basis of the facts and circumstances of the crime. Through the accurate application of the law, the judicial organs pursue the responsibility of all aspects of private fund crimes and the violations and crimes of all types of entities in accordance with the law, demonstrating the judicial attitude of severely punishing them in accordance with the law, and effectively protecting the legitimate rights and interests of investors.

The second is to cover the main types of crimes in the current private equity field, guide case handling, and strengthen warning education. Five typical cases occurred in the whole process of private fund raising, investment and management, involving private equity funds, private securities funds, registered funds and unfiled "pseudo funds", covering the crime of illegal fundraising and the misappropriation, embezzlement, and commercial bribery crimes of private fund managers that infringe on the interests of investors. These cases not only have guiding significance for judicial case-handling work in terms of fact determination and application of law, but also draw a "red line" and "bottom line" for private equity fund practitioners, educating and warning practitioners to raise funds legally, invest in compliance with regulations, and operate in good faith. At the same time, it is also a reminder to the public that what behaviors are illegal fundraising, and under which circumstances investment interests may be damaged, do not invest blindly for small profits, exercise the rights of investors in accordance with the law, and safeguard legitimate interests.

Third, it reflects the effectiveness of the people's procuratorates and people's courts in punishing and preventing private equity fund crimes. The CPC Central Committee and the State Council attach great importance to the development of the private fund industry, and all relevant departments have vigorously promoted relevant legislation, law enforcement and judicial work in the field of private funds, and punished violations and crimes of private funds in accordance with the law. The people's courts perform their adjudication functions in accordance with the law, accurately convict and sentence on the basis of facts and the law, and comprehensively use a variety of means to recover investors' losses. The people's procuratorates and people's courts protect the legitimate rights and interests of investors by punishing illegal fundraising, misappropriation, embezzlement, commercial bribery and other illegal crimes in the field of private funds in accordance with law, and jointly provide judicial guarantees for the standardized and healthy development of the private fund industry.

Q: What are the functions and roles of the procuratorial organs in punishing and preventing private equity crimes, and what effective measures have they taken?

Answer: The procuratorial organs have always placed the punishment of private fund crimes in accordance with the law, the protection of the legitimate rights and interests of investors, and the protection of the standardized and healthy development of the industry in an important position in the performance of their duties, and while persisting in handling cases in accordance with the law, they have also clarified the judicial standards for law enforcement in a timely manner, so as to provide legal guarantees for the private fund industry to standardize its operation and improve supervision in accordance with the law, and adhere to the procuratorial duties of maintaining financial security and preventing and resolving major risks.

The first is to increase the punishment of private equity fund crimes. So far in 2021, procuratorates across the country have prosecuted a total of 2,085 people for private equity crimes. In 2022 and 2023, the Supreme People's Procuratorate will supervise and handle two batches of 16 major private equity fund crime cases, of which 13 have been prosecuted in accordance with the law and 5 have been decided. The embezzlement case of Guo and Wang released this time is the first batch of supervised cases. In the 44th batch of Guiding Cases released by the Supreme People's Procuratorate in 2023, the case of Zhang Yeqiang et al. illegally raising funds clearly distinguishes between lawful private placement and illegal fundraising. Procuratorial organs at all levels have formed a warning and deterrent effect through high-quality and efficient handling of a number of major cases of social concern, and provided a strong guarantee for the development of the private equity industry through the performance of procuratorial duties.

The second is to strengthen guidance on case handling and clarify judicial standards. In April 2022, the Supreme People's Procuratorate (SPP) and the Ministry of Public Security (MPS) jointly issued revised standards for filing and prosecuting economic crimes, revising the standards for filing and prosecuting crimes such as illegal absorption of public deposits, fundraising fraud, misappropriation of funds, and embezzlement of duties, which are common in the field of private equity funds. At present, we are studying the drafting of normative documents for handling cases of private equity fund crimes, and further clarifying the application of law and the standards for evidence review. This time, the Joint Supreme Court released five typical cases of private equity crimes, clarifying the outstanding problems existing in such cases in terms of the thinking of proof of accusations, evidence collection, and application of law, and guiding the handling of cases in new fields.

The third is to protect the rights and interests of investors in accordance with the law. Investor protection is the top priority in cracking down on private fund crimes in accordance with the law, and the procuratorial organs carry out the entire process of handling cases with the recovery of stolen goods and losses, adhere to the principle of "pursuing all that should be pursued", and do their best to help investors recover economic losses through various means such as "double investigation in one case" and clues on money laundering crimes and commercial bribery crimes.

Fourth, it is necessary to carry out efforts to manage the source of litigation and prevent crime in conjunction with case handling. Procuratorial organs at all levels have closely integrated supervision and case handling, assisted in taking the pulse of the common problems and management loopholes in the operation and management of private equity fund managers, institutional investors, and financial regulatory departments, and made the work of treating both the symptoms and the root causes in depth, in a down-to-earth and detailed manner, through the formulation and issuance of procuratorial suggestions. Earnestly implement the responsibility of popularizing the law, combining the cases handled, using traditional media, web portals, "two micro and one end", warning education, on-site popularization of the law, and other methods to carry out publicity and education on the rule of law for financial crimes, enhance the public's awareness of the legal and risk of financial investment, and increase the ability to identify and prevent the risks of financial violations and crimes.

Q: How can the people's courts give full play to their adjudication functions, crack down on private equity fund crimes in accordance with the law, and effectively prevent and resolve major financial risks?

Answer: The people's courts have earnestly implemented the Opinions of the Office of the Central Committee and the Office of the State Council on Cracking Down on Illegal Securities Activities in Accordance with the Law, fully implemented the work requirements of "zero tolerance" for illegal and criminal acts in the capital market, gave full play to the role of adjudication functions, strengthened coordination and cooperation with relevant departments, severely punished private equity fund crimes in accordance with the law, effectively prevented and resolved major financial risks, and maintained the country's financial security and overall social stability.

The first is to severely punish the crimes of private equity funds in accordance with the law. Private fund crimes mainly include two aspects: one is the fund-raising side, which is mainly illegal fund-raising crimes, and some fraud crimes, and the other is the fund use side, which involves crimes such as misappropriation of funds, embezzlement of duties, and manipulation of the securities market. From 2021 to October 31, 2023, courts across the country convicted a total of 1,888 people for private equity crimes. Always persist in severely punishing private fund crimes, and resolutely give heavy sentences where they should be given heavy sentences in accordance with law, giving full play to the deterrent effect of the criminal law. At the same time, adhere to the criminal policy of blending leniency and severity, focusing on cracking down on the organizers, plotters, commanders, and the main recipients of illegal benefits, and give lenient punishments to first-time offenders and occasional offenders who are instructed to participate, and to give lenient punishments in accordance with law to those who actively return stolen goods and make restitution, or resolve risks on their own and achieve good results, to ensure the organic unity of political, legal, and social effects.

The second is to improve and improve relevant judicial interpretations and judicial policies. In 2022, the Supreme People's Court issued the revised Interpretation on Several Issues Concerning the Specific Application of Law in the Trial of Criminal Cases of Illegal Fundraising, which further clarifies the conviction and sentencing standards for illegal fundraising and the application of relevant laws, and provides a legal and policy basis for combating the crime of illegal fundraising by private funds. The Interpretation clarifies the four legal requirements for the determination of illegal fundraising, and stipulates that "illegally absorbing funds by means of pretending to be offshore funds, selling fictitious funds, etc., without the true content of the fund-raising" is the mode of illegally absorbing deposits from the public. In judicial practice, illegal fundraising carried out in the name of a private fund, including "self-financing" in the name of a private fund, which has the four characteristics of illegality, openness, inducement and sociality, is found to be a crime of illegal fundraising in accordance with law. For example, the "Shanghai Fuxing Industrial Group Co., Ltd. Fundraising Fraud Case" released at the 2022 press conference on the financial crime trial work of the "People's Court in the Past Decade" is a typical case of illegal fundraising by licensed private equity firms.

The third is to improve the coordination mechanism. In recent years, the Supreme People's Court, the Supreme People's Procuratorate, the Ministry of Public Security, and the China Securities Regulatory Commission have strengthened communication, coordination, coordination, and cooperation, conducted in-depth research and demonstration on issues related to illegal fundraising, misappropriation of funds, and embezzlement of duties involved in private equity funds, jointly studied and resolved problems encountered in practice, improved and improved relevant working mechanisms, and formed a strong joint work force to ensure that the crackdown is effective and the punishment is effective. Pay attention to the overall planning of efforts such as case trial, recovery of stolen goods and losses, disposal of assets, and maintenance of stability, properly handle major cases of private equity fund crimes involving the public, and always carry out the recovery of stolen goods and losses throughout the entire process of trial and disposal of cases, minimize investment losses, effectively prevent and resolve major financial risks, firmly guard the bottom line of no systemic financial risks, and effectively maintain the country's financial security and stability.

Q: In what areas will the people's procuratorates and people's courts focus on intensifying the crackdown on private equity fund crimes in the next step?

A: First, we will continue to increase the intensity of punishment for private equity fund crimes. Make full use of existing laws and judicial interpretations to handle private fund crimes in accordance with law. Adhere to the idea of penetrating review and identification, accurately identify "pseudo private placements", and pursue criminal responsibility in accordance with the law for those who commit illegal fundraising crimes in the name of private placement, and do not allow criminals to wear the disguise of "private placement" and evade legal sanctions; Integrate the recovery of stolen goods and losses throughout the entire process of case handling, emphasizing guiding the public security organs to promptly investigate assets involved in the case, lawfully applying the plea leniency system, and doing a good job of efforts for criminal suspects to admit guilt and repentance, return stolen goods and make restitution, and recover economic losses for investors to the greatest extent.

The second is to strengthen coordination and cooperation with securities regulators, public security organs and other departments. The people's courts and procuratorial organs at all levels have strengthened mutual discussion and cooperation with the public security organs in guiding investigations, clarifying the ideas for proving accusations, and unifying the application of law, so as to further enhance the joint efforts to combat private equity fund crimes and prudently prevent and resolve industry risks.

The third is to boost industry governance. The people's procuratorates and people's courts are to put forward opinions and suggestions on strengthening and improving the establishment of industry compliance through methods such as formulating and issuing procuratorial recommendations, judicial recommendations, and promptly releasing typical cases, punishing crimes, curing diseases, preventing crimes, and promoting industry governance, so as to better serve and safeguard the overall situation of economic development and maintain financial security.