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“Investor Protection, Clear Rules, and Risk” Case – “Dangerous Game” for Non-Qualified Investors

(Summary description)A private equity investment fund (hereinafter referred to as a private equity fund) refers to an investment fund established in the territory of the People's Republic of China to raise funds from investors in a non-public manner. The forms of private equity funds are contractual, corporate and partnership.

“Investor Protection, Clear Rules, and Risk” Case – “Dangerous Game” for Non-Qualified Investors

(Summary description)A private equity investment fund (hereinafter referred to as a private equity fund) refers to an investment fund established in the territory of the People's Republic of China to raise funds from investors in a non-public manner. The forms of private equity funds are contractual, corporate and partnership.

Information

A private equity investment fund (hereinafter referred to as a private equity fund) refers to an investment fund established in the territory of the People's Republic of China to raise funds from investors in a non-public manner. The forms of private equity funds are contractual, corporate and partnership.

In recent years, China's private equity fund industry has flourished and has become an important force supporting the development of multi-level capital markets. However, risk events such as illegal fund-raising, redemption of crises, illegal propaganda, and violation of investor suitability systems have begun to emerge. Among them, in the name of financial innovation, cases of disguised breakthroughs in the bottom line of qualified investors have emerged. As the CSRC's Interim Measures for the Supervision and Administration of Private Equity Investment Funds (hereinafter referred to as the “Private Equity Measures”) clearly stipulates the standards for qualified investors of private equity funds, that is, they have the corresponding risk tolerance and risk-taking ability, and the amount invested in a single private equity fund. Not less than 1 million yuan, etc., in order to circumvent regulatory requirements, some companies use a variety of methods to try to break through the relevant standards of qualified investors.

Take the case of investor Wang as an example. In 2014, a fund company sold a limited partnership fund product to Wang. Wang actually paid only 300,000 yuan, and the amount invested in a single private fund was less than 1 million yuan. The fund company’s act of raising funds from non-qualified investors violates the provisions of Article 11 of the “Private Equity Measures”, “Private Equity Funds Should Be Raised to Qualified Investors”. The CSRC decided to give a warning and imposed a fine of 30,000 yuan.

There is also a typical case of evading the standards of qualified investors through the concept of “revenue transfer splitting” of private equity products. “XX Bao” is an internet financial platform that provides so-called “return of income rights” services through its website and APP. The specific model is that the operator C company of “XX Bao”, through its wholly-owned D company, acts as a qualified investor and purchases the relevant private equity products first; then, after the company D splits the income right of the private equity products it holds Through the transfer of “XX Bao” to registered users, registered users can also transfer the income right to other registered users through “XX Bao”. The starting point of the investment amount set by “XX Bao” is 1,000 yuan (fixed income category) and 10,000 yuan (equity category). In addition, according to the “Revenue Transfer Agreement” signed by Company D and investors, the risks and benefits of private equity products are borne by the transferee, ie, the investors. Afterwards, a CSRC found that Company C violated the provisions of the “Private Equity Measures” and constituted illegal private equity activities such as private placement of non-qualified investors, illegal transfer of private equity funds, and the number of private equity investors exceeding the statutory ceiling. The company and its legal representative and relevant management personnel have taken administrative supervision measures according to law. Many of the investors involved in this case also suffered different degrees of losses, and the case also triggered many investor complaints.

Private equity products have high-risk attributes and require investors with certain risk identification capabilities and affordability to purchase. In the above case, the relevant investors bear the risk of surpassing their own capabilities. For example, Wang only invested 300,000 yuan to purchase private equity products with an investment threshold of 1 million yuan. In the second case, after the private placement of the products was transferred, the risks were transferred to investors. It can be said that the above-mentioned behaviors have lowered the threshold of qualified investors, so that some investors with weak risk identification ability and risk-taking ability bear the risks that should not be borne.

Through the above cases, investors are reminded to pay attention to the following issues:

First, we must do our best. Private equity investment has the characteristics of high risk, and requires high risk identification and risk tolerance for investors. The "Private Equity Measures" also clearly stipulates the requirements of qualified investors of private equity funds. Except for a single private fund investment of not less than 1 million yuan, the net assets of the unit shall not be less than 10 million yuan, and the personal financial assets shall not be less than 3 million. The average annual income of the yuan or the last three years is not less than 500,000 yuan. Investors should proceed from their own actual conditions and do what they can to determine whether they can invest in private equity fund products according to the criteria of qualified investors in private equity funds. Under the premise of meeting the criteria of qualified investors, they should choose products that match their risk tolerance. .

Second, we must find out the details. Only private fund managers who are legally registered with fund industry associations can raise funds from qualified investors. Investors are advised to use the fund industry association website (www.amac.org.cn) to check whether the institution has registered with the fund industry association before purchasing private equity products, and should not purchase through illegal channels. At the same time, it is also possible to understand the past performance of the private fund managers, market reputation and integrity standards.

Third, we must look at the contract. A fund contract is an important instrument that stipulates the rights and obligations between investors and private equity managers. Investors are advised to pay attention to whether the contract complies with the “Guidelines for Contracts for Private Equity Investment Funds” issued by the Fund Industry Association. It is necessary to pay attention to whether the rights and obligations stipulated in the contract are reasonable, whether the contract is complete, and whether there are any abnormalities such as missing pages and missing pages. Read the terms carefully. For those concepts that are not understood, the vague expressions should be explained or explained by the fund manager. Do not be fooled or blinded by various exaggerated or false propaganda. For multiple contracts, you should also check that the content of each contract is completely consistent. In addition, we must be especially vigilant about the collection of illegal funds like the C company in Case 2, wearing a "financial innovation" coat. When investors purchase financial products through the Internet platform, they should carefully read the relevant product introductions, understand who is buying the products, who should sign with them, where the funds are drawn, and the specific investment. If abnormalities are found, you should consult the fund industry association or regulatory authorities in a timely manner.

Fourth, we must continue to pay attention. After the investors subscribe for private equity products, they should continue to pay attention to the investment and operation of private equity products, and require private fund managers to fulfill their information disclosure obligations as agreed. If the investor finds that the manager has lost the link, the fund property is misappropriated and misappropriated, and the fund has significant risks, etc., it should be promptly reported to the securities regulatory authority of the private equity fund manager or the fund industry association; if the private fund manager is found to be suspected of fraud, illegal If you raise funds such as fundraising clues, you must report the case to the public security and judicial organs in a timely manner.

Fifth, you must regularly study private equity knowledge. The development of Internet technology has made the financial business continue to innovate. Investors should also regularly learn relevant knowledge when participating in high-risk investment businesses such as private equity funds, such as browsing the website of the regulatory authorities or fund industry associations, and reading newspapers and magazines. Seriously identify relevant business or products, do not be fooled by so-called innovative products, ultra-high-yield, remember that "you are looking at the benefits of others, others are your principal."

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