For a mere 5,000 yuan, this long-established private equity firm received a "penalty ticket."
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What can you do with five thousand yuan?
In a first-tier city in China, this might cover two nights in a five-star hotel, or buy an electric bike, or perhaps pay for a decent bottle of red wine.
But in the world of private funds, a registered private fund manager with nine formal employees has provided a new answer with their actions:
For only five thousand yuan, you can rent a legitimate private fund license, use it to package unknown assets from a "fake financial exchange" into a product, and then sell it to investors.
This absurd business, of course, received "severe penalties" from relevant authorities.
The Transgressive "Entrusted" Business
The main character in this case is a company called Shanghai TangX Investment Management Co., Ltd. (pseudonym, hereinafter "TangX Investment"), whose illegal conduct began with a clear "crossing of the line."
According to the disciplinary action decision recently released by the Asset Management Association:
On November 8, 2021, this private fund institution signed an "Entrusted Management Agreement" with a decoration engineering company in the same city called Shanghai ZhongXX Construction Decoration Engineering Co., Ltd. (abbreviated as "Construction Company").
The agreement stipulated that TangX Investment was entrusted as the asset transfer manager for the "Rongchuang Stable Income No. 1 Enterprise Credit Transaction Agreement," responsible for full-cycle management, and would collect a management fee at 0.8% of the actual transfer amount.
This "business" was later determined by the Association to be TangX Investment's involvement in activities unrelated to fund management and with potential conflicts of interest.
Complications Arise Midway
The specific details are somewhat "complicated" to describe.
As mentioned earlier, in November 2021, TangX Investment and the construction company signed an agreement for TangX to act as the transfer trustee manager of assets related to a credit transaction agreement.
Subsequently, between November 19, 2021, and January 25, 2022, the construction company transferred a cumulative 1.32 million yuan in asset income rights to three individuals; TangX Investment thereby collected 9,330.02 yuan in entrusted management fees (actual receipt after deducting fees was 5,203.4 yuan).
But fatally, the related credit transaction was issued by the construction company on a platform called "GuiX OTC Inter-Institutional Market Co., Ltd."
And during the transaction, this institution was stripped of its financial asset trading qualification by the local financial regulatory bureau in Guizhou. These assets instantly became "fake financial exchange" products.
It can be verified that in December 2021, the Guizhou Provincial Local Financial Supervision Bureau announced the cancellation of financial asset trading qualifications for GuiX OTC Inter-Institutional Market Co., Ltd. and five other institutions. They would not engage in such business anymore, but would continue to fulfill original exchange payment and risk management responsibilities.
Continue the Transactions?
When problems emerged with the assets during the trading process, one might naturally expect the transactions to stop.
But for reasons unknown, the private fund manager, individuals, and the construction company all continued the transactions.
As a result, transactions concerning the "problematic assets" proceeded further.
Later, the disciplinary decision directly concluded: (The above) products involved in the case are typical "fake financial exchange" products.
Considering the background of this incident in 2021, investors at the time may not have been aware of the underground assets and financing scandals that would become well-known later.
But as a professional institution, TangX Investment was clearly supposed to have sufficient compliance awareness. Ultimately, this private fund manager permitted the transaction, collected management fees from it, and to some extent, provided a "channel" and "credit enhancement" for this non-compliant transaction.
Inevitably, they have since become embroiled in a series of disputes and investigations.
What Is This Institution's Background?
Registration information shows: TangX Investment was founded in 2014, with an asset management scale of 0-500 million yuan and nine full-time employees.
The founder of this private fund previously worked at various industrial companies and has set up five products in total.
As mentioned above, TangX Investment was engaged to be the manager for transferring the asset returns in the "Rongchuang Stable Income No. 1 Enterprise Credit Transaction Agreement."
However, this product does not appear on the record list of products for this private fund.
This constitutes another questionable "suspicion."
Crossing the Critical Red Line
According to the authorities, the aforementioned "crossing of the line" by TangX Investment precisely violated regulatory red lines.
According to the disciplinary action letter, this behavior directly violated Article 4 of the "Regulations on Strengthening Supervision of Private Investment Funds," and Article 8 of the "Private Fund Management Internal Control Guidelines."
Of these two regulations, the former states:
"Private equity fund managers shall not directly or indirectly engage in lending, guarantees, factoring, pawn brokering, financial leasing, P2P lending, crowdfunding, off-exchange leverage, or any other business that conflicts with or is unrelated to private fund management."
The latter regulation states: "Private fund managers must adhere to the principle of professional operation, with clear main business, and may not concurrently run other businesses unrelated to private fund management or involving conflicts of interest."
In the end, the Asset Management Association issued a warning disciplinary action to TangX Investment and recorded this in their integrity file.
Risk warning and disclaimerThe market holds risk, and investment requires caution. This article does not constitute individual investment advice and does not take into account the specific investment objectives, financial situations, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Any investment made accordingly is done at your own risk. ```