Galaxy Securities (601811.SH) has become embroiled in the fallout from the default crisis involving Shanghai Legan Asset Management Co., Ltd. (Legan Asset), a once-prominent private fund manager with billions under management. The scandal, which erupted two years ago due to redemption failures and alleged fundraising fraud, continues to haunt investors, with Galaxy Securities now under scrutiny as one of the key distributors involved.
A recent report highlighted the case of a 62-year-old investor from Nanjing, Ms. Cai, who invested RMB 5 million through Galaxy Securities in July 2022 into the "Legan Tianbao All-Weather No. 5 Phase II Private Securities Investment Fund" (Legan No. 5 Fund), acquiring 4.4053 million units. However, by 2023, Legan Asset faced a full-blown liquidity crisis, and in February 2024, it was formally investigated for suspected fundraising fraud. Company executives, including controlling shareholders Li Jinlong and Li Hailong, were subjected to criminal measures. The case went to trial in November 2025 at the Pudong Court.
Ms. Cai's ordeal is just the tip of the iceberg. According to earlier reports, a list of investors revealed that 52 individuals purchased the fund through Galaxy Securities, with total investments nearing RMB 100 million. Following Legan Asset's default, some investors have sought legal recourse to protect their rights.
**Galaxy Securities' Distribution Violations Draw Regulatory Warnings** Ms. Cai's RMB 5 million investment has exposed multiple regulatory breaches by Galaxy Securities and its staff during the sales process. These include facilitating subscriptions for unqualified investors, implicitly promising capital preservation and fixed returns, and significant deviations from the fund's stated investment strategy. Chat records show that Ms. Cai initially failed the qualified investor assessment but was guided by Galaxy Securities' Nanjing Jiangdong Middle Road branch employee, Shi Min, to retake the risk assessment, enabling her to purchase what was marketed as a "customized capital-guaranteed product."
Legal experts point out that Galaxy Securities may have violated suitability obligations by mismatching high-risk products with low-risk tolerance investors, potentially leading to liability for investor losses.
**Misallocation of Funds and Regulatory Sanctions** The fund's liquidation report revealed that Legan No. 5 Fund did not adhere to its declared strategy of primarily investing in Hong Kong IPO subscriptions. Instead, the capital was funneled into other private funds, including Legan Innovation All-Weather No. 2 and Legan Leading No. 1, ultimately landing in products managed by Shanghai Qifu Investment. Qifu Investment, established in February 2016, had 10 registered products, seven of which were liquidated early.
In November 2023, Galaxy Securities received a regulatory warning for lapses in private fund distribution, including inadequate due diligence, custody failures, and branch management deficiencies. In December 2024, employee Shi Min was also penalized for misleading clients during fund promotions.
**Broken Promises and Legal Battles** Investors like Ms. Cai and Mr. Huang from Beijing, who invested RMB 10.05 million, were allegedly assured of capital protection and returns through supplementary agreements signed with Legan Asset—deals not formally acknowledged by Galaxy Securities. Despite initial settlement offers (e.g., 92% principal repayment contingent on withdrawing complaints), Galaxy Securities later reneged, leaving investors in limbo.
Legal experts note that while verbal or informal promises may constitute binding offers, their enforceability hinges on evidence, which is often challenging to substantiate. Some investors are now pursuing joint liability claims against Galaxy Securities under civil tort or contract breach theories.
**Galaxy Securities' Strong Financial Performance Amid Scandal** Despite the controversy, Galaxy Securities reported robust financials for the first three quarters of 2025, with revenue surging 44.39% to RMB 22.751 billion and net profit up 57.51% to RMB 10.968 billion. Its asset management and brokerage businesses drove growth, with fee-based income rising sharply. The firm’s heavy holdings included stocks like Shandong Longda Meishi Co.,Ltd. (002726.SZ) and Guangdong Prolto Supply Chain Management Co.,Ltd. (002769.SZ).
While its fund distribution business rebounded in H1 2025 (sales up 38.84% to RMB 3.36 billion), the Legan scandal underscores systemic gaps in suitability management and oversight—a critical area for industry reform.
As Legan Asset's case unfolds in court, investors await clarity on recovery priorities under China’s civil and criminal enforcement hierarchy, where compensatory claims rank above fines and forfeitures.
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