A decade-old conduit business continues to unleash risk aftershocks today. Recently, Jinlong Co., Ltd. disclosed a litigation case involving Zhongshan Securities, stemming from a conduit transaction arranged ten years ago. China Everbright Bank Changchun Branch, China Merchants Bank Wuxi Branch, Zhongshan Securities, and Ping An Bank Shenzhen Branch played the roles of fund provider, conduit, conduit, and lender, respectively, within this business chain. However, China Everbright Bank Changchun Branch claims that 350 million yuan of its funds were misappropriated through fabricated documents orchestrated by a collusion between a branch employee and the actual controller of the financing party. Consequently, it has sued the relevant parties in the chain, demanding joint and several liability for compensation. Reportedly, including losses from fund occupation fees, the amount involved in the lawsuit reaches 489 million yuan. This represents a new lawsuit initiated by China Everbright Bank Changchun Branch based on "tort liability dispute." A decade ago, the bank separately sued China Merchants Bank Wuxi Branch for "contract dispute," seeking principal repayment and interest, but ultimately lost the case. The Supreme Court previously stated that the case was not a tort damages lawsuit and declined to adjudicate on whether both parties were at fault for the fund loss and how liability should be apportioned. This may have set a "prelude" for the current new round of litigation. How to define the liability boundaries for the conduit party in such businesses, and whether complete exemption is possible, remain focal points of industry attention. A review of recent judicial precedents indicates that some conduit parties have been held liable for a certain proportion of joint and several responsibility.
Zhongshan Securities is currently embroiled in this conduit business dispute. Jinlong Co., Ltd. recently announced that Zhongshan Securities received a "Notice to Respond to Action" from the Changchun Intermediate People's Court in Jilin Province. This legal dispute exposes the chaos prevalent in conduit businesses before the introduction of the "New Asset Management Regulations" and the legal risks faced by securities asset management products acting as conduits. According to the announcement, the case dates back 12 years. In May 2014, China Merchants Bank Wuxi Branch commissioned Zhongshan Securities to establish a定向资产管理计划 (directed asset management plan) and issued an "Investment Instruction," authorizing Zhongshan Securities to represent it in signing a "Entrusted Loan Contract" with Ping An Bank Shenzhen Branch and Liuhe Juxinyuan Rice Industry Co., Ltd. (hereinafter "Liuhe Juxinyuan Rice Industry"). The relevant contracts stipulated that investment decisions rested with China Merchants Bank Wuxi Branch, and investment safety and risk-return were borne solely by this bank. Subsequently, Zhongshan Securities, representing this asset management plan and its client (China Merchants Bank Wuxi Branch), instructed the trustee, Ping An Bank Shenzhen Branch, to disburse the 350 million yuan entrusted loan funds to Liuhe Juxinyuan Rice Industry. After the investment matured in May 2015, the entrusted loan failed to be recovered as scheduled.
The dispute centers on who should bear the responsibility for the capital loss. China Everbright Bank Changchun Branch alleges that its employee, Zhang Lei from the Changchun Automobile Factory Sub-branch, and Liu Xiaoyi, the actual controller of Liuhe Juxinyuan Rice Industry, impersonated the bank to sign false documents like the "Entrusted Directed Investment Agreement" and "Investment Instruction" with China Merchants Bank Wuxi Branch. This allegedly caused the 350 million yuan to flow out through multiple conduit layers under an "entrusted directed investment" model, resulting in the bank's capital loss. China Everbright Bank Changchun Branch requests the court to order China Merchants Bank Wuxi Branch, Zhongshan Securities, Ping An Bank Shenzhen Branch, Guomin Fund, and Zhu Dongwei to jointly compensate 350 million yuan plus fund occupation fee losses. Based on its claims, calculated temporarily until October 15, 2025, the total amount sought in this lawsuit is 489 million yuan. Jinlong Co., Ltd. stated that the case has not yet gone to trial and that Zhongshan Securities will actively take measures to respond, using legal means to protect its legitimate rights and interests. Jinlong also mentioned that the impact of this case on its current or future profits is uncertain and will be accounted for according to relevant accounting standards and the actual situation.
This is actually the second lawsuit initiated by China Everbright Bank Changchun Branch. As early as September 2015, Everbright Bank had sued China Merchants Bank Wuxi Branch for contract dispute. Judgment documents published online reveal more details. In the latter half of 2013, Liu Xiaoyi met Zhang Lei and requested help obtaining a 350 million yuan loan from Everbright Bank Changchun Branch, promising help with deposit gathering in return. Liu fabricated the fund's purpose, claiming it was for grain purchase, while concealing his company's massive debt and his own futures speculation. The two initially attempted but failed to secure a loan directly from Everbright Bank Changchun Branch. In May 2014, through an introduction, Zhang Lei met an employee, Hou, from China Merchants Bank Wuxi Branch. They preliminarily agreed on an interbank entrusted directed investment model to finance Liuhe Juxinyuan Rice Industry: Everbright Bank Changchun Branch would deposit 350 million yuan with China Merchants Bank Wuxi Branch as an interbank deposit; the latter would then, based on a signed "Entrusted Directed Investment Agreement" and "Investment Instruction" with Everbright, channel the funds through Zhongshan Securities to Ping An Bank Shenzhen Branch for lending to Liuhe Juxinyuan Rice Industry.
On the day scheduled for signing these agreements (May 23, 2014), Hou from China Merchants Bank Wuxi Branch brought the documents to Everbright Bank Changchun Branch. Zhang Lei falsely claimed he needed to take the materials for stamping but instead私自加盖 (privately affixed) seals for Everbright Bank Changchun Branch's official seal and legal representative seal that Liu Xiaoyi had pre-forged and provided. Six days later (May 29), Hou noticed discrepancies. He informed Zhang Lei that the reserved seal impression for Everbright's account was the bank's financial seal and legal representative seal, which did not match the official and legal representative seals on the documents received from Zhang, preventing the transaction. Zhang Lei then forged a "Situation Statement" claiming the financial seal was worn and replaced by the official seal, again affixing the forged seals. The next day (May 30), key events unfolded: Liu Xiaoyi's driver delivered the materials, including the forged statement, to Hou in Wuxi; Everbright Bank Changchun Branch and China Merchants Bank Wuxi Branch signed an "Interbank Deposit Agreement," with Everbright transferring the 350 million yuan; China Merchants Bank Wuxi Branch, following the agreement, transferred the funds through Zhongshan Securities to Ping An Bank Shenzhen Branch; and Liu Xiaoyi, presenting forged "Grain Purchase and Sales Contracts," signed the "Entrusted Loan Contract" with Ping An Bank Shenzhen Branch, which disbursed the 350 million yuan to Liuhe Juxinyuan Rice Industry's account that same day.
Three months later (August 13), China Merchants Bank Wuxi Branch reported to police, alleging Zhang Lei and others forged seals to help Liu Xiaoyi fraudulently obtain the 350 million yuan loan from the "asset management conduit," Ping An Bank Shenzhen Branch. Everbright Bank Changchun Branch sued China Merchants Bank Wuxi Branch for contract dispute. The first-instance court, the Jilin Provincial High People's Court, ruled in Everbright's favor, ordering China Merchants Bank Wuxi Branch to return the 350 million yuan principal plus interest and违约金 (penalties). China Merchants Bank Wuxi Branch appealed to the Supreme Court. The Supreme Court's second-instance ruling overturned the first-instance judgment and dismissed Everbright Bank Changchun Branch's claims. Analyzing the two judgments, the key disputes were: 1) whether an entrusted directed investment legal relationship existed between the two banks, and 2) the validity of the "Interbank Deposit Agreement." A Shenzhen lawyer analyzed that these were crucial; if the entrusted investment relationship was established, Everbright might bear the risk under agency rules; if the deposit agreement was valid, China Merchants would bear principal loss and pay interest. Thus, the parties held fundamentally opposing views on these points.
The Supreme Court delivered the final judgment. It held that the "Entrusted Directed Investment Agreement" and "Investment Instruction" were forgeries by Zhang Lei and Liu Xiaoyi, not representing Everbright Bank Changchun Branch's true intent. Furthermore, China Merchants Bank Wuxi Branch failed its duty of prudent care upon noticing the seal discrepancies; thus, Zhang Lei's actions did not constitute apparent agency. Although the "Interbank Deposit Agreement" bore both banks' seals, it was part of the deception by Zhang and Liu, constituting a legal form掩盖 (covering) an illegal purpose. Therefore, neither an entrusted investment contract relationship nor an interbank deposit relationship existed. However, the Supreme Court's second-instance judgment also noted that since the case was not a tort damages lawsuit based on the 350 million yuan loss, it would not adjudicate issues like applicable mixed fault liability or how fault and liability should be allocated between the banks. This arguably laid the "prelude" for Everbright Bank Changchun Branch's new lawsuit in 2026.
Now, China Everbright Bank Changchun Branch has initiated a new lawsuit based on "tort liability dispute," naming the banks and securities firm acting as conduits as defendants. Clarifying the legal responsibilities of each party in this conduit business warrants ongoing market attention. Before 2018, "conduit business" was prevalent in financial markets, popular for circumventing regulatory limits and helping金融机构 (financial institutions) scale up. Service providers expanded from trust companies to securities asset management departments and fund company subsidiaries, with securities asset management being the "main force." To curb the "chaos," regulators frequently intervened. In 2017, the CSRC emphasized that securities and fund institutions must not engage in so-called "conduit business" that relinquishes management responsibility, issuing a通报 (circular) titled "Conduits Have Risks, Conduits Are Not Exempt from Liability," highlighting cases where conduit managers bore legal liability for lack of diligence. The 2018 "New Asset Management Regulations" formalized "de-channeling" as a clear regulatory direction.
In judicial practice, whether conduit parties in such businesses bear liability remains a market focus. The 2020 "Hua'ao Trust case" adjudicated by the Shanghai Financial Court set a landmark precedent, being the first where a trust company was held liable for compensation in a conduit business. Hua'ao Trust was found liable for 20% supplementary compensation for investor losses. The court held that even in passive management conduit trust businesses, trust companies must operate prudently and fulfill necessary duty of care when acting independently in their name. Another related case reached a final judgment in 2024. In the case of Chen v. Tianjin Daye Hengtong Asset Management Co., Ltd. and Everbright Xinglong Trust Co., Ltd. (以下简称 "Everbright Trust"), the conduit party, Everbright Trust, was held liable for 40% joint and several compensation (reduced from 100% in the first instance). The Beijing Financial Court ruled that even for passive management trusts, the trustee's statutory obligations cannot be waived; Everbright Trust should still prudently perform its法定责任 (statutory duties), control business准入标准 (access standards), improve project due diligence, strictly manage fund disbursement, and not transfer合规风险 (compliance risk) management responsibility to the client.
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