2 billion private placement Ruifengda ran away, what responsibility should the custodian of the 8 securities companies bear?

Bond Market Watch V

2024-05-12 21:56Posted on the official account of Shanxi Bond Market Watch

The Securities Regulatory Commission acted quickly and opened a case for investigation!

Author | Li Feilin, Yao Yue

Edit | Fu Ying

Source | Bond Market Watch

On the evening of May 11, the China Securities Regulatory Commission announced that Ruifengda Company was suspected of a number of violations of laws and regulations, and the Securities Regulatory Commission decided to investigate it and deal with it strictly in accordance with the law.

On the afternoon of May 9, the news of "2 billion well-known private equity Ruifengda running away" spread in the financial circle, causing hot attention in the market. According to a number of media on-site visits, the office of Zhejiang Ruifengda Asset Management Co., Ltd. (hereinafter referred to as "Ruifengda") has indeed been emptied, leaving only a group of investors who defend their rights.

Ruifengda, which was still intensively issuing new products for the record in March this year, "ran away" with money just one month later, which caught a group of investors off guard for a while.

According to the "First Finance" report, some investors buy Ruifengda fund products for an amount ranging from 3 million yuan to 30 million yuan, most of which are purchased through sales or agents, and they are currently unable to redeem.

The product income of Ruifengda's operation is also very amazing, and the private placement network disclosed that only the "Ruifengda Shirui No. 1 Product" has been established since its establishment on April 12, 2022, with a cumulative income of 795.43%, and the annualized income has reached an astonishing 191.25%.

At present, Ruifengda has a total of 70 products for the record, and it is worth noting that the product custodians include China Merchants Securities, Guotai Junan, CITIC Securities and other nearly 10 securities companies.

What are the duties and obligations of the custodian in the filing of private placement products? What is the responsibility of the custodian for the private placement "running away"?

01

Mysterious trader

According to public information, Ruifengda was established in 2016 on the bank of the Taihu River, headquartered in Shanghai, with a registered capital of 30 million yuan, and is a professional private equity fund management company. The main business is private securities investment funds and private securities investment FOF funds, with a management scale of 2 billion to 5 billion yuan. Since 2022, it has successively issued more than 60 funds covering ultra-high-net-worth customers' private customization and institutional customer special account cooperation.

Ruifengda has more than 10 fund managers, and his resume is also very bright. The sectors covered include market opportunities, large consumption sectors, quantification + artificial intelligence, futures investment, computer science and Internet of Things. Among them, Shao Bingbing, a fund manager in the traditional Chinese medicine sector, recommended the fund product Ruifengda Shirui No. 1, with a cumulative return of 664.31% and an annualized return of 320.23%; In addition, Zhou Qiang, a fund manager in the agriculture + public utilities sector, has a cumulative return of 335.43%. Li Chao, manager of the value investment and trend investment fund of the cycle group, has a cumulative return of 265.65%.

Source: Canned Gallery

It is reported that Ruifengda once claimed to be engaged in quantitative multi-asset strategy, and its actual operation is quite mysterious. According to the self-media "Institutional Home", the funds raised by Ruifengda were not used for stable investment, but were used to cooperate with shareholders of listed companies on the New Third Board, and were suspected of jointly manipulating the stock prices of related stocks. "Brokerage China" pointed out that from the perspective of capital investment, many products of Ruifengda have multi-layer nesting.

Specifically, a private placement product of Ruifengda invested in "Ruizhu Jia'an No. 2 Private Securities Investment Fund" and "Zeheng Zhongyin No. 1 Private Securities Investment Fund", which are respectively under Jiangsu Ruizhu Private Equity Fund Management Co., Ltd. (hereinafter referred to as "Ruizhu Private Equity") and Shanghai Zeheng Fund Management Co., Ltd. (hereinafter referred to as "Zeheng Fund"). Another product valuation table of Zeheng Fund shows that "Zeheng Zhongyin No. 1 Private Securities Investment Fund" has returned to Ruizhu Private Equity and Ruifengda.

"Brokerage China" quoted industry insiders as saying that Ruifengda is actually owned by Riying Group, in fact, it is the transformation of the original team that did P2P before, they do not understand investment and private equity, and basically follow the original set of management. I found a lot of so-called investment managers, all of whom were engaged in nesting and lacked formal play.

According to Wind data, as of the 2023 annual report, Ruifengda has recently appeared in the list of the top ten circulating shareholders of 6 NEEQ stocks, namely Hejia Tianjian, Bangkele, Weifuji, Youlian Shengye, Nongjiang Technology, and Haotian Energy Storage.

According to the "First Finance" report, the Ruifengda product contract provided by an investor shows that the seals and signatures at the settlement office are Shanghai Steaming Investment Management Co., Ltd. (hereinafter referred to as "Steaming Investment") and Sun Wei. According to Tianyancha, Ranran Investment is 100% owned by Riying Investment Holding Group Co., Ltd. (hereinafter referred to as "Riying Investment").

Source: Tianyancha

On the surface, Ruifengda has no direct equity relationship with Riying Investment and Steaming Investment, but various information shows that Riying Investment has a close relationship with Ruifengda. Even, Ruifengda and the "Riying system" behind it are likely to be "mom-and-pop shops".

According to Tianyancha, Sun Wei is not only the legal representative of Steaming Investment, but also the general manager of Riying Investment. Moreover, Ruifengda shares a landline number with 74 companies, of which there are more than 20 "Riying" companies.

Source: Tianyancha

In addition, according to a number of media reports, Ruifengda's actual office address is adjacent to Riying Investment. The offices of Ruifengda and Riying Investment are located in the Hui Mansion in Pudong New Area, Shanghai, which are located in Building 10 and Building 8 respectively. The "Financial Associated Press" reported that investors gathered at the site of the Riying Investment Office to "ask for explanations", and after on-site inspection, the product fund contracts and other materials of Ruifengda Assets were placed in the Riying Investment Office.

According to the "First Finance" report, a number of investors and agents of the company's products said that Li Min, the chairman of Riying Investment, and Sun Wei are husband and wife. Some investors also said that Sun Wei and Li Min co-founded the Riying enterprise in 2012.

According to Tianyancha, Riying Investment is currently involved in 18 lawsuits, one of which was executed with an amount of 4.9138 million yuan, but all of them were not performed, and it was "having the ability to perform but refusing to perform the obligations determined by effective legal documents", so it has been listed as a dishonest person subject to execution.

Source: Tianyancha

It is worth noting that the filing date of the above case is March 20, 2024, and according to Tianyancha, on April 15, 2024, Li Min, Sun Wei, Shanghai Lingya Enterprise Management Center (Limited Partnership), Shanghai Luofu Enterprise Management Center (Limited Partnership) and other shareholders withdrew from the Riying Investment shareholder sequence at the same time.

10 years ago, Li Min and Sun Wei began to hold shares of Riying Holdings. According to Tianyancha, before 2014, Riying Investment was funded by Li Min alone. The change record in July 2014 shows that the shareholders of the company are Li Min and Sun Wei.

"Securities Times" reported that the actual controller of Ruifengda has lost contact, and some investors have reported the case.

02

If the custodian is involved in multiple securities firms, should he be held responsible?

According to the website of the AMAC, Ruifengda has a total of 68 operating products, 2 products are liquidated in advance, and the custodians include CITIC Securities, Huatai Securities, China Merchants Securities, China Galaxy Securities, Guotai Junan, Caitong Securities, Huaan Securities, etc. Among them, more than half of the products are custodian of China Merchants Securities.

Source: Private placement

According to the "Financial Associated Press", it was learned from channel sources that the valuation data and custody chapters of Ruifengda's products are suspected of fraud, and the custodian is currently assisting in the regulatory investigation.

According to Yicai, some investors are planning to sue the custodian after collecting information.

So, if the private equity fund manager runs away, will the custodian be held responsible?

Zhang Xiaoying, a lawyer at Beijing Yingke Law Firm, said that to determine whether the custodian is responsible, we must first look at the specific terms in the custody agreement, and then see whether the custodian supervises and transfers funds in accordance with the agreement.

Bai Wenxi, vice chairman of the China Enterprise Capital Alliance, said that generally speaking, if the custodian violates the contract in the management process, such as failing to review the manager's application for fund transfer in accordance with the fund contract, resulting in the transfer of funds from the fund account, or failing to prudently review the net value of the fund and regular reports, resulting in investors being misled, then the custodian may need to bear the corresponding responsibility.

Source: Canned Gallery

"In previous cases, there have been cases where custodians have been held liable. Generally, the custodian bears the supplementary liability and the administrator bears the primary liability. Zhang Xiaoying said.

It is understood that the establishment of a fund custodian is in accordance with the principle of separating asset management and asset custody, so that it can represent the rights and interests of investors and ensure the safety of fund assets. The fund custodian shall open an independent fund asset account for the fund, which shall be responsible for the receipt and payment of funds, the transfer of funds, the clearing of securities, and the distribution of dividends.

It is worth noting that in all of this, the fund custodian is in principle to act in accordance with the instructions of the fund manager, and the instructions of the fund manager must also be executed through the fund custodian.

However, the execution in the actual process tends to be deformed. According to the analysis of Mao Peng, a lawyer and senior partner of Guangdong Shengdian Law Firm, quoted by the "Bay Finance Society" under the Southern Metropolis Daily, the fund custodian basically acts in accordance with the instructions of the fund manager, and as long as the instructions of the fund manager do not exceed the provisions of the private fund contract, the custodian often only does a formal review, not a substantive review.

According to the International Financial News, Zhang Qing, a lawyer at Shanghai Hansheng Law Firm, also said that although the custodian's fees are borne by the investor, the custodian is selected by the fund manager, so some unscrupulous custodians will turn a blind eye to the behavior of the fund manager. "Normally, there are a lot of valuation frauds in the private equity market."

Source: Canned Gallery

It is worth noting that in the regulatory storm of A-shares in recent years, securities firms have received a lot of fines due to illegal sales of private placements and incomplete performance of custody duties. According to the statistics of the "Financial Associated Press", there will be 14 fines related to the asset management business in 2023. Among them, they include Galaxy Securities, Ping An Securities, Industrial Securities, Xiangcai Securities, Yintai Securities, etc.

Judging from the content of the fine, there are three major risks in the asset custody business of securities firms: failure to do a good job in the qualification review of the principal; business compliance and risk control are not in place; Insufficient investment in talent and systems. In view of the chaos in the consignment and asset custody business, the regulator has also emphasized that it is necessary to enhance the ability of risk prevention and adopt the practice principle of "not seeing clearly and not doing business" for the client.

Returning to the "Ruifengda runaway" incident, there is no more information about the custodian's operation. Whether these brokers providing custody services are liable is subject to further investigation and legal proceedings.

Have you paid attention to Ruifengda's products, and what do you think about the phenomenon of private equity institutions running away? Feel free to leave a comment.

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