Safeguarding the rights and interests of investors and safeguarding their confidence are important prerequisites for promoting the sustained and healthy development of the capital market. In order to help build a good capital market order, safeguard the legitimate rights and interests of investors, and fulfill the responsibilities and obligations of listed companies, Guanzhong Ecology will launch the "Investor Protection" publicity column from 2023, once a month, to spread official voices, convey professional knowledge, help investors improve their investment knowledge level, enhance their ability to distinguish the authenticity of information, and stay away from false advertising, illegal stock recommendations, malicious speculation and other behaviors.
"Guanzhong Ecological Investor Protection" Promotion Column
SectionIssue 13: Stay away from "pseudo private equity" and keep your "money bag"
Investors cannot understand why Guoying Private Equity Fund, which has qualifications, records, and contracts, is actually a scam? This issue's investor protection promotion column reveals private equity fund scams through real cases.
Issued 133 private equity funds, illegally raised 7.681 billion yuan
Between July 2012 and 2018, the defendants Zhang Mouqiang and Bai Moujie successively established Guoying affiliated companies. The companies they actually controlled, Guoying Investment Fund Management (Beijing) Co., Ltd., Zhongxing United Investment Co., Ltd., and Guoying Asset Management Co., Ltd., obtained qualifications as private equity, venture capital fund managers, and private securities investment fund managers (hereinafter referred to as "private fund managers") from the China Securities Investment Fund Association (hereinafter referred to as "CICA"), and established branches in Nanjing and other places.
Between October 2014 and August 2018, Zhang Mouqiang and Bai Moujie used annualized returns of 7.5% to 14% and entered into private fund share repurchase contracts as bait. They used methods such as telephone contact, WeChat promotion, distributing promotional materials, and holding promotion meetings to publicly publicize false information, exaggerate the business scale and investment value of the project company, deceive investors' trust, and allow unqualified investors to purchase private funds through methods such as "bundling orders" and "holding on behalf of others". Through the above methods, Zhang and Bai controlled Guoying affiliated companies to issue and sell 133 private equity funds, illegally raising more than 7.681 billion yuan in public funds.
After the funds to be raised are deposited into the custody fund account and transferred to the project company under their actual control, Zhang and Bai will transfer the vast majority of the raised funds from the project company to the "fund pool" account of the Guoying company for unified control and disposal. The company's financial manager, Mr. Lu, is responsible for fund allocation and other related tasks.
Among the above-mentioned fundraising funds, more than 4.976 billion yuan of the issued private equity fund principal and income were redeemed in the form of "raising new funds to repay old ones", used for equity and stock investments of more than 320 million yuan, used for "premium acquisition" of project company equity of more than 230 million yuan, used for paying employee salaries and commissions, operating expenses of Guoying Group companies, repaying debts owed by Guoying Group companies and project companies of more than 1.703 billion yuan, and used for squandering and paying personal debts owed by Zhang Mouqiang of more than 452 million yuan. Most of the projects invested by Zhang Mouqiang are in a loss making state. At the time of the incident, the participants in the fundraising suffered a total loss of over 2.853 billion yuan in principal.
Private equity funds have been registered,Will they also be suspected of illegal fundraising??
On December 14, 2018, the Nanjing Public Security Bureau in Jiangsu Province transferred Zhang Mouqiang, Bai Moujie, and Lu Mou to the Nanjing Procuratorate for prosecution on suspicion of fundraising fraud.
During the investigation stage, Zhang Mouqiang and others argued that it did not constitute the crime of fundraising fraud. After being transferred for prosecution, they further argued that Guoying Group Company had registered as a private fund manager with the China Securities Regulatory Commission, and 119 out of 133 private funds issued and sold had been filed according to regulations, which was a recognition of the investment prospects of the project company. The company signed a repurchase agreement with investors to reduce the risk of individual projects. Not investing all the raised funds into the project company was based on internal allocation according to the company's plan, and using the later raised funds to repay the principal and interest of the earlier private funds was only a violation of regulations.
In response to the defense of Zhang Mouqiang and others, the Nanjing Procuratorate, after reviewing the evidence in the case, requested the public security organs to conduct supplementary investigations on the actual operation of Guoying affiliated companies in various aspects such as fundraising, investment, management, and exit. The public security organs collected and transferred relevant evidence based on the supplementary investigation outline. After examination, the procuratorial organ believes that the evidence in the case is sufficient to prove that Zhang Mouqiang, Bai Moujie, and Lu Mou illegally raised funds through the sale of private equity funds, with the purpose of illegal possession, and used fraudulent methods to illegally raise funds, causing significant losses to the participants in the fundraising.
The prosecutor in charge of the case pointed out that although the Guoying affiliated companies controlled by Zhang and others have the qualifications of private fund managers, and the 119 private funds issued and sold have been filed, they conduct public publicity, virtualize the qualified investor confirmation procedures, allow unqualified investors to purchase private funds through "bundling" and "holding", and use their actual controlled affiliated companies to sign repurchase agreements with investors to indirectly promise to repay principal and interest, which violates the relevant provisions of private fund management such as the Securities Investment Fund Law of the People's Republic of China, as well as the provisions of the Commercial Bank Law of the People's Republic of China that no unit or individual may engage in absorbing public deposits without the approval of the financial management department of the State Council. The above behavior conforms to the characteristics of "illegality," "openness," "inducement," and "sociality" of illegal absorption of public deposits.
In addition, out of the 133 private equity funds actually issued and sold by Zhang Mouqiang and others, 131 of them did not use the raised funds in accordance with the investment direction stipulated in the contract, and concealed from investors the fact that the project companies invested in by the private equity funds were actually controlled by Zhang Mouqiang and suffered losses for years, which constitutes illegal fundraising using fraudulent methods. Most of the funds raised by Zhang Mouqiang and others were not used for production and operation activities, and a small portion of the raised funds were used for investment in the project operation process. However, Zhang Mouqiang and others made arbitrary investment decisions and management, and the project company continued to suffer losses and had no actual profitability. For a long time, Zhang Mouqiang and others mainly paid the promised principal and interest by raising new funds to repay old ones, ultimately resulting in a huge amount of funds that could not be returned, which is sufficient to determine that the defendant had the purpose of illegal possession. Based on this, the procuratorial organ believes that the defendants Zhang Mouqiang, Bai Moujie, and Lu constitute the crime of fundraising fraud.
On August 11, 2021, the Nanjing Intermediate People's Court sentenced the defendant Zhang Mouqiang to life imprisonment for the crime of fundraising fraud, deprived him of political rights for life, and confiscated all his personal property; Sentence the defendant Bai Moujie to fifteen years' imprisonment and confiscate 15 million yuan of property; The defendant Lu was sentenced to twelve years in prison and had 10 million yuan of property confiscated. Zhang Mouqiang, Bai Moujie, and Lu Mou appealed, and on December 29 of the same year, the Jiangsu Provincial High People's Court ruled to reject the appeal and uphold the original judgment.
Identification and judgment of "pseudo private equity"
1、 Determine whether there are relevant business qualification documents
Identify the company's business license, relevant business qualification documents, and registration and filing status with the China Securities Investment Fund Industry Association. If a company has not been registered and filed in accordance with the law or has been deregistered, and does not have the qualifications for private fund operation and management, it can be determined that the products it issues do not belong to legal private funds.
2、 Determine whether there is a registration with the China Securities Investment Fund Industry Association
On the basis of identifying the legitimacy of the subject, it is necessary to further identify the legitimacy of the so-called private fund products themselves. The issuance of private equity fund products also requires filing with the China Securities Investment Fund Industry Association and setting up custody accounts in banks in accordance with regulations. If the so-called private equity fund products have not been registered and filed, or have not established custody accounts in banks, their legality cannot be recognized.
3、 Determine whether to commit or indirectly commit to principal preservation and interest payment to investors
Pay attention to reviewing investment agreements and related product promotional materials to determine whether there are any commitments or disguised commitments to break even and pay interest. Private equity fund products belong to venture capital, and according to regulatory regulations, it is prohibited to promise or indirectly promise principal preservation and interest payment to investors. If there are commitments or disguised commitments to principal preservation and interest payment in the relevant investment agreement, it does not conform to the essential characteristics of private equity funds and does not belong to legal private equity funds.
Key points for preventing "pseudo private equity"
1、 Check
One is to check the relevant licenses and qualifications of private equity funds. You can log in to the website of the China Association of Private Equity Institutions to view the registration and filing information of private equity institutions, and learn about their background, management personnel, products, and other information. However, it should be noted that the registration and filing information of the Fund Industry Association does not constitute recognition of the compliance and investment capabilities of private equity institutions. Secondly, pay attention to fund information disclosure. These information can be obtained through the information disclosure system of the China Fund Association or the channels specified in the fund contract to ensure transparency of the information.
2、 Er Si
Think about whether one's own economic ability can withstand investment risks.
Does the return of Ersi Fund conform to the laws of market economy.
3、 Three Views
Upon examining the legality of financing, only legitimate financial institutions approved by the national financial regulatory authorities are qualified to raise funds from the public.
Secondly, consider the legitimacy of publicity: Legitimate and legitimate private equity funds do not promise to guarantee principal, interest, and returns.
Three restrictions on the target audience: According to the Interim Measures for the Supervision and Administration of Private Equity Investment Funds, private equity funds should raise funds from qualified investors and invest no less than 1 million yuan in a single private equity fund.
Illegal fundraising is not a mysterious scam, and although there are various tricks, they cannot escape the characteristics of "public publicity", "promising to maintain capital and high interest", and "raising funds from unspecified targets". Investors should understand the essence of illegal fundraising, stay away from various illegal and irregular behaviors under the name of "private equity funds", understand the rules and risks, and sharpen their "sharp eyes". Once they discover the above violations, they should collect and preserve evidence in a timely manner, report to the public security organs and regulatory departments immediately, and file a complaint with the China Fund Industry Association.
