Due to float on Shanghai’s stock market in the near future, the initial public offering of a wealth management company is under threat after a customer lost around 20 million yuan (almost $3 million) in a “no-risk” deal.
In 2016, financial advisor Su Haiming of Zheshang Securities guaranteed a customer, Jin Guanghua, that any stock market trades conducted on Jin’s behalf would not cause him any financial losses, after he lost money in an initial investment. The deal was signed and stamped with the company’s seal. Six months later, Jin discovered that the contract is a forgery.
The 7 billion yuan investment company has consistently denied any culpability for the falsified agreement, but the already-indebted firm may struggle to get permission to make its initial public offering given its recent setbacks, say experts.
The Jiangsu province branch of the China Securities Regulatory Commission (CSRC), the government ministry that oversees the country’s investment firms, has yet to give Zheshang Securities the go-ahead to proceed to the next stage of its IPO.
“Although it probably won’t have much of a long-term impact, the company will have to wait longer to finalize its IPO,” a Beijing-based investment manager told Sixth Tone. He insisted on anonymity for professional reasons.
“It really depends on how serious this incident turns out to be,” added a Shanghai-based IPO specialist who also insisted on anonymity. “It’s possible the company could miss this chance to make its IPO.”
Last December, Jin took his case to the CSRC, hoping to be granted compensation. In April 2017, the commission decided Zheshang Securities was not responsible for the loss. However, it urged the company to close any loopholes in its system, conduct an internal investigation into the unauthorized financial products, and submit their findings to the commission by the end of May.
In a video published by The Paper, Sixth Tone’s sister publication, Su refused to pay back the money: “Twenty million yuan makes this a major mistake by the financial industry. No one person should bear this responsibility.”
This is not Zheshang Securities’ first brush with accusations of malpractice. In February 2016, Li Jianlu, an operations supervisor, was investigated after losing millions of yuan of his clients’ money.
Fake deals like the one Jin signed are not new in China. In a recent well-publicized case, a Beijing branch manager of China Minsheng Bank sold 3 billion yuan in unofficial financial products to investors.
In 2016, the CSRC tightened regulations regarding sales practice and banned securities firms from any behavior indicating or promising that capital will be protected as part of an investment package.
“We do tell clients there are products with a guaranteed return on principal investment, although we know it is still possible for them to lose those principals because of unavoidable systemic risks,” a Xi’an-based wealth manager surnamed Hai who would not give his first name due to company policy told Sixth Tone. “I guess when that actually happens, the bank will just step in to find a way to reduce losses so the client doesn’t lose faith in them,” she added.
Editor: Sarah O’Meara.
(Header image: A man walks past a sign in front of the offices of Zheshang Securities in Guangzhou, Guangdong province, Sept. 10, 2010. He Dongping/VCG)