Reporter Guo Jingting reports from Beijing
"The China Securities Regulatory Commission (CSRC) has an unwavering attitude towards zero-tolerance crackdown on securities violations and crimes, and will work with relevant parties to improve the judicial system and mechanism for securities law enforcement, accelerate the construction of a comprehensive punishment and prevention system for anti-counterfeiting and anti-counterfeiting in the capital market, further improve the efficiency of administrative and criminal cohesion, and make lawbreakers pay a heavy price." On May 15, at the "515 National Investor Protection Publicity Day" event, Wu Qing, chairman of the China Securities Regulatory Commission, systematically elaborated on investor protection in the capital market.
Just a few days ago, Ruifengda Asset Management Co., Ltd. (hereinafter referred to as "Ruifengda"), a 3 billion yuan private equity institution, lost contact, the product could not be redeemed, and the office was empty. At present, the police have seized Ruifeng Dazi. On May 11, the China Securities Regulatory Commission said that from the current situation, Ruifengda Company was suspected of a number of violations of laws and regulations, and decided to file a case for investigation and strictly deal with it in accordance with the law.
The incident continued to ferment, and the new third board companies related to Ruifengda's product holdings successively announced the suspension of trading and self-inspection.
A number of private equity firms interviewed expressed concern to the China Business News reporter that negative events would erode investors' trust in private equity firms, and the reputation of the industry that had been built and maintained for many years would disappear.
"In the past few days, many customers have come to inquire after seeing the news, and I know that they are afraid that we will also run away." Talking about the impact of the incident on the private equity industry, a private equity fund manager in Beijing told reporters about the recent changes, "How can a formal private equity institution have a way to transfer the money of a secondary market securities custodian product, which everyone thinks is incredible." ”
In an interview with reporters, Liao Hekai, an analyst of Jinle Function, analyzed that this is to take advantage of the low liquidity of the New Third Board to manipulate stock prices to fall into each other, or to conspire with major shareholders of listed companies to make a market, assist in cashing out, and share money together. The new third board market value is small, the liquidity of the ticket is easy to manipulate, basically the custodian is mainly to execute the instructions, according to the contract to receive the instructions to operate, there is no procedural problems is basically no responsibility.
"The specific way of operation may be to use the manipulation of low-liquidity stocks or over-the-counter options business on the New Third Board. Both of these methods allow for the transfer of funds from fund products on the basis of existing rules. Whether the custodian has the corresponding responsibility in this event also depends on the investment scope and risk control terms of the fund product. Lin Zhisheng, general manager of Yanqi Investment, told reporters.
The fancy operation of the new third board pulls up the stock price
Tianyancha information shows that Ruifengda was established in 2016 on the bank of the Taihu River, headquartered in Shanghai, with a registered capital of 30 million yuan, a paid-in capital of 7.5 million yuan, and a management scale of 2 billion to 5 billion yuan. The reporter found that there are as many as 75 companies that share the same office phone with Ruifengda, of which 20 are "Riying" enterprises.
According to the information on the website of the Asset Management Association of China (hereinafter referred to as the "Asset Management Association"), the legal representative, general manager and executive director of Ruifengda Company is Liu Licheng, the deputy general manager is Xie Xuefei, and the person in charge of compliance and risk control is Chen Qingji.
It is worth mentioning that the two companies where the above three executives previously worked had thunderstorms, Jiangsu Fuxin Wealth Asset Management and Jin'an Wealth. In 2020, according to the police report, Jiangsu Fuxin Wealth Asset Management used high returns as bait to absorb funds from unspecified members of the public, and was suspected of illegally absorbing public deposits. Jinan Wealth was also notified of the suspected criminal activities of illegal fundraising.
The reporter learned from the private placement network that at present, Ruifengda has a total of 70 products for the record, with the record number P1062869, of which two products have been liquidated and 29 products have been less than one year. The investment managers are Cong Lifeng, Sun Hao, and Rong Cheng, and the core strategy is equity strategy. In the two years of the capital market downturn, there were 16 products with an annualized rate of more than 10%.
According to the data of the private placement network, the cumulative income of Ruifengda's private placement products is 85.3%, the income in the past year is 5.60%, and the annualized income is 9.95%.
"In the capital environment of the past two years, such a yield curve is very beautiful, and it can even be said to be too bright." Interviewed private equity sources told reporters.
The reporter found that the net value of Ruifengda Shirui No. 1 unit was 8.9543 yuan, and the income was as high as 795.43% in the two years since its establishment, with an annualized rate of return of 191.25%.
Such a high net worth is considered by many parties to be related to its "fancy operation" on the New Third Board.
According to the information disclosed so far, senior private equity people in Shanghai described to reporters the suspected illegal operation used by Ruifengda. Specifically, they will choose targets with low stock prices, low liquidity, and low total market capitalization, and quietly buy the holding chips first, and they will get operational space when they buy a certain ratio. Once you have a lot of chips, use multiple accounts to cross and buy and sell with each other, following their ideas and rhythms, pulling up the stock price and creating a beautiful curve. Then use the money raised by its private equity fund to buy back the stocks with inflated valuations at a high level, so that the funds can be transferred in compliance by buying low and selling high.
As of May 17, in the announcement of the national small and medium-sized enterprise share transfer system, according to the reporter's incomplete statistics, 10 new third board enterprises involved in the Ruifengda incident announcement suspension verification, namely Sairongxin, Hejia Tianjian, Weifuji, Agrocarpus Technology, Youlian Shengye, Bangkele, Haotian Energy Storage, Shuoen Network, Weicai Education, and Longshen Ecology. Among them, 7 were suspended due to "negative news involving shareholders Ruifengda and Ruizhu-related private equity funds, and there were major risk events", and 3 were suspended due to "negative news involving Ruifengda-related private equity funds".
Specifically, according to the 2023 annual report, Ruifengda Assets' products appear in the list of the top ten circulating shareholders of 6 NEEQ stocks, including Wei Fu Ji, Hejia Tianjian, Haotian Energy Storage, Youlian Shengye, Nongjiang Technology and Bangkele.
The reporter found that after Ruifengda products held the above-mentioned new third board stocks, the stock prices of listed companies fluctuated significantly, and on May 7 before the incident, many shares such as Sairongxin, Hejia Tianjian, and Nongjiang Technology appeared at a high level.
On May 14, 2024, Guangdong Wei Fu Ji Technology Co., Ltd. issued a suspension announcement, saying that the closing price of its shares had increased by 8718.67% in trading days from June 29 to September 25, 2023, and the company's stock price fluctuations seriously deviated from the market and industry trends. The reporter noticed that in June 2023, its stock price was 3 yuan, and after Ruifengda appeared to buy aggressively, the stock price continued to rise to 260 yuan in November 2023.
The same situation also occurred in Agrocarpus Technology and Jia Tianjian, among which Agrosper Technology rose from 0.14 yuan to 66.66 yuan in the second half of last year (July 19-December 18, 2023), and the annual report shows that eight of the top ten circulating shareholders are from Ruifengda and Jiangsu Ruizhu's products.
Hejia Tianjian's 2023 annual report shows that after Ruifengda and Jiangsu Ruizhu bought at a high level at the end of the year, their 6 products ranked among the top ten circulating shareholders.
"Private equity funds have a bunch of stocks with very inflated value in their hands, but investors see that they are still making money on the books, but they are actually paper wealth. Once investors want to use money, when this routine is played to an extreme point and is about to explode, they may be about to run away. The above-mentioned private equity source told reporters.
After the outbreak of the Ruifengda incident, a large private equity person said in an interview with reporters that the large private equity in the value investment category where he is located generally does not choose the new third board target.
"Financial institutions are generally very strict about the penetration of underlying assets, and some brokerage futures companies invest in our products, and we need to hand over the valuation of the bottom, and some things can be seen through the valuation table." Senior private equity sources in Shanghai pointed out.
The custodian may be subject to legal liability
"The fund accounts are all managed by brokers, and the fund delivery path is clear and can be checked one by one." Ruifengda's fundraising brochure reads.
Since the incident, some investors have asked how Ruifengda transferred the money under the custodian's nose. Is the firewall managed by the brokerage firm reliable? This has triggered the market's wariness of private equity funds.
According to the information of the AMAC, at present, Ruifengda has a total of 68 products for the record, and the custodian of 50 products is China Merchants Securities, in addition to Guotai Junan, CITIC Securities, Huatai Securities, GF Securities, Caitong Securities, China Galaxy Securities, and Huaan Securities also hosted some products.
After the actual controller of Ruifengda Private Equity Fund was suspected of "running away", many investors turned their attention to the custodian with whom they had business connections. So, what is the role of the custodian in general? Do private equity managers need to be held liable after they "run away"?
In this regard, Wang Xingyao, a senior partner of Beijing Qiancheng Law Firm, believes that the fund custodian is in accordance with the principle of separating asset management and asset custody, so as to allow it to 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, the distribution of dividends, etc. It is extremely difficult to detect any irrationality in the transaction according to China's current management method of non-interference in the actual operation of investment and operation by custodian institutions in China.
Nonetheless, custodians are not entirely free of responsibility in such incidents.
"If the custodian fails to conduct a strict review of the flow of funds in accordance with the custody agreement and the fund investment agreement, so that the funds are mistakenly invested in assets that do not comply with the provisions of the agreement, then the custodian must be liable for compensation." Wang Xingyao further pointed out that in view of the obvious lack of information disclosure in this incident, if the custodian fails to find significant problems in the fund information disclosure due to negligence when regularly reviewing the fund net value report, the custodian also needs to bear the corresponding legal responsibility.
The interviewed Beijing private equity person expressed his doubts to reporters: "The custodian accounts are all supervised, how do they transfer the funds?" The manager generally does not have access to the investment account, and can only place orders, but cannot touch the money above. ”
"As long as the custody is in line with the contract and can be operated in full accordance with the process instructions, it has fulfilled its responsibilities, and it is unreasonable to give too much responsibility to the trusteeship in this link, of course, if the custody finds additional problems in the operation process, it can be reported to the regulator, but this does not belong to the normal scope of responsibilities and is often difficult to define. The operational guidelines for private equity funds are more of a guide and constraint on the operation of private funds, and do not deal much with this part. Liao Hekai pointed out.
"Ruifengda's operation is illegal, and there are similar operations for those who take risks in the industry, and it is often difficult to find out if there is no incident, and once it is found, it is an illegal and criminal act, because it often involves a huge amount of money, and there will be serious legal consequences." Liao Hekai said bluntly.
Effectively safeguard the rights and interests of investors
The "running away" incident of Ruifengda's actual controller will undoubtedly have a negative impact on the image of the entire private equity industry. How to plug loopholes and effectively safeguard the rights and interests of investors has attracted much attention.
Ruifengda Asset Brochure claims that high-net-worth customers account for 80%, futures and brokerages account for 15%, and listed companies and others account for 5%. This means that many professional institutions are deeply involved in their investment.
How can investors identify risks?
In Liao Hekai's view, it is difficult to find problems in the process, mainly because there are constraints at the level of contract terms, and further standardizing the regular information disclosure mechanism at the regulatory level may also be one of the constraints. If an abnormality is found in the process, it is necessary to intervene in time and control the risk as soon as possible through regulatory intervention or judicial means.
Interviewed private equity people reminded that high returns are often accompanied by high risks, investors should keep their eyes open, those attractive high-yield products beyond the market, there are huge risks hidden behind them, and they are not willing to fall into the tragedy of "you want his income, but he wants your principal".
For the management of private placements, the supervision has become stricter. Half a month ago, AMAC issued the "Guidelines for the Operation of Private Securities Investment Funds" (hereinafter referred to as the "Guidelines"). Talking about the highlights of the document, Shu Taifeng, a partner of Chongyang Investment, said in an interview with reporters that the Guidelines put forward clear requirements for the raising, investment, operation and other aspects of private securities funds and the internal control of private equity fund managers, and set differentiated rectification requirements for existing private securities funds, reasonably set up a transition period, and avoid adverse effects on the normal operation of the fund, which is conducive to the long-term standardized development of the private securities fund industry.
On May 15, the China Securities Regulatory Commission (CSRC) mentioned in its 2023 law enforcement summary that it would increase law enforcement against private placement and futures violations. In 2023, 29 private placement and futures cases will be handled, including misappropriation of fund assets, violation of the investor suitability system, violation of promised returns, illegal investment operations, and failure to disclose information in accordance with regulations. Pay close attention to relevant risk-related cases, such as 8 private equity institutions controlling multiple private equity institutions to nest investments with each other through covert methods such as equity holding, fictitious underlying targets and valuations, involving thousands of investors, and misappropriating tens of billions of yuan in private equity fund assets.
(Editor: Xia Xin Review: He Shasha Proofreader: Yan Yuxia)