A court has determined that the actions of a securities firm and an investment company not only jointly violated mandatory financial regulations and disrupted market order, but also directly caused an investor to commit funds without full awareness and the ability to bear the extremely high risks involved. Their improper operations were found to have a direct causal link to the investor's losses, warranting joint liability for compensation.
Following the persistent promotion of a structured over-the-counter derivative product, an investor ultimately suffered losses exceeding 14.34 million yuan. Recently, the Shanghai Financial Court issued a final ruling in a dispute case involving a brokerage and a private fund firm illicitly selling such a product to an individual. The securities company and the investment firm were ordered to jointly compensate the investor, Mr. Fei, for approximately 10.04 million yuan.
On June 12, the judgment document for this case was published on China Judgements Online. The document indicates the securities firm involved is domiciled in the Jianye District of Nanjing, Jiangsu Province. Public information shows that among 120 domestic securities firms, only two are registered in Nanjing, and only one has a legal representative surnamed Wang, which is Huatai Securities Co., Ltd. (ASX: 601688). Its registered address is in Nanjing's Jianye District, with Chairman Wang Huiqing as its legal representative.
On June 24, a reporter contacted Huatai Securities to verify its involvement in the case but had not received a response by the time of publication.
Public records show Huatai Securities was involved in a lawsuit in July 2025, where the plaintiff was an individual named Fei and the defendants were Huatai Securities and Beijing Funa Investment Co., Ltd. This case number is confirmed in the judgment as the first-instance case number.
The appellate judgment states that the securities company and the investment company appealed against the first-instance ruling from the Shanghai Minhang District People's Court.
The dispute centers on the structured product popular between 2020 and 2024, which is essentially a type of exotic option with knock-in and knock-out barriers. Investing in such a product is akin to selling an exotic put option to earn a premium, with the underlying assets linked to indices, stocks, or commodities, constituting a high-risk investment product.
A legal expert pointed out that according to relevant regulations, counterparties for over-the-counter options must be professional institutional investors, explicitly excluding natural persons. The complex structure of these products makes it difficult for ordinary investors to understand the loss risks in extreme market conditions. Setting such thresholds aims to prevent the retailing of high-risk derivatives.
The investor in this case is a major shareholder of a listed company. One reason for the securities firm's dissatisfaction with the first-instance ruling was related to the confirmation of the investor's status as a "natural person."
Initial Contact and Persistent Promotion
The judgment details that between April 2023 and August 2024, Mr. Fei purchased a total of 23 such structured products. For these transactions, the securities company and the investment company signed supplementary trade confirmations. Mr. Fei transferred approximately 66.85 million yuan in margin and ultimately recovered about 52.5 million yuan, incurring a loss exceeding 14.34 million yuan.
The judgment reconstructs the promotion process by the securities firm's employee. In early September 2022, an employee named Zhang promoted the product to Mr. Fei via WeChat, emphasizing competitive pricing and urging him to complete procedures quickly. Mr. Fei initially declined, stating he did not intend to proceed due to the employee's unfamiliarity with the business. Mr. Zhang then pleaded, "We sincerely request the Chairman to give us another chance."
Mr. Zhang attempted another visit in October 2022, which was politely declined. Undeterred, in March 2023, he offered to introduce Mr. Fei to top asset managers in Shanghai and arranged for a team leader to visit Zhengzhou specifically to meet him. On March 27, 2023, Mr. Fei agreed to a meeting.
While the judgment does not detail the offline conversation, the following day, Mr. Fei's agent discussed bridging loan matters with Mr. Zhang via WeChat. Under Mr. Zhang's guidance, the agent completed the online signing for a fund under Mr. Fei's investment company. On March 31, Mr. Fei paid 45,000 yuan in interest for the bridging loan based on information provided by Mr. Zhang. The first-instance court thus determined the securities firm assisted Mr. Fei in setting up a funding channel.
On April 3, 2023, the securities company entered into a derivatives trading agreement with the fund managed by the investment company. The judgment notes the fund size was 50 million yuan, with only two investors: Mr. Fei and another individual, Mr. Shi, who clarified in the lawsuit that his funds entirely originated from Mr. Fei.
A key statement was made by Mr. Zhang on April 12, 2023, explicitly informing Mr. Fei that individuals operating product accounts would face regulatory penalties, that domestic individuals could not trade such products, and that the arrangement was to circumvent supervision.
During subsequent trading, Mr. Fei's side and the securities firm's staff communicated via two WeChat groups regarding the product transactions. Some communication records show that the 23 over-the-counter option trades were directly instructed by Mr. Fei or his designated personnel within these groups.
For instance, discussions involved confirming yield calculations based on margin and nominal principal, and Mr. Fei directly instructing purchases, which the securities staff executed accordingly.
In October 2023 and January 2024, the securities firm's employees sent margin call notices in the groups due to declines in the underlying asset prices, requiring additional margin. This indicated the products Mr. Fei purchased were facing sustained price drops in the linked assets. The judgment does not specify the exact timing or details of when the products "knocked-in," leading to losses.
The first-instance court ascertained that Mr. Fei was the largest shareholder of a technology listed company, holding approximately 35% of the shares. Public data indicates that among A-share listed companies, only two have a largest shareholder surnamed Fei. One of them, Xintian Technology, has a major shareholder, Fei Zhanbo, holding 35.86% of shares. Public records show Fei Zhanbo served as chairman of Xintian Technology from May 2010 to December 2022. Attempts to contact Xintian Technology to confirm if Mr. Fei in the case is Fei Zhanbo received no response by the publication deadline.
Court's Ruling on Liability and Compensation
The first-instance judgment found the securities firm at fault for improper promotion, engaging in transactions with an ineligible investor, assisting in setting up a funding channel, and failing to effectively monitor the proportion of participation in over-the-counter option purchases. It determined the securities firm breached its suitability obligations and should bear primary responsibility, apportioned at 70%. The investment company, acting as a channel following instructions from both the securities firm and Mr. Fei, shared commonality in conduct and was held jointly liable. Mr. Fei, aware of his ineligibility yet still participating in the transactions and playing a leading role in specific trades, was assigned 30% responsibility.
The securities firm appealed, arguing the promotion was targeted at a company controlled by Mr. Fei, not him personally, and that it was not the active promoter. The investment company also contended that the loss resulted from "market fluctuations + Mr. Fei's own decisions," and its role in facilitating the channel was a neutral business operation, not warranting joint liability.
Based on WeChat records, the first-instance court affirmed the securities firm actively promoted the transactions to Mr. Fei. It rejected the defense that Mr. Fei actively sought the trades and had prior experience, noting no evidence of prior transactions in such products and that the employee was clearly more proactive, persisting even after initial refusal.
Furthermore, evidence showed the securities firm's employee provided test answers to the client and assisted in completing securities transactions, which the court deemed违规.
The Shanghai Financial Court held that both the securities company and the investment company, as professional financial institutions, knowingly cooperated to establish an违规 trading model using the fund as a channel for an ineligible individual investor. Their actions jointly violated mandatory regulatory provisions, disrupted financial market order, and directly caused Mr. Fei to invest without full awareness of or capacity to bear the extreme risks. The违规 operations were directly causally linked to the losses, justifying joint liability for compensation.
On June 2, 2026, the Shanghai Financial Court issued the final judgment: the appeal was dismissed, and the original ruling upheld. The securities company and the investment company are required to jointly compensate Mr. Fei approximately 10.04 million yuan within ten days of the judgment taking effect, and also bear over 80,000 yuan in second-instance court acceptance fees.
A legal expert analyzed that the securities firm, aware individuals cannot participate in over-the-counter options, actively promoted the product, devised circumvention plans, connected private fund channels and bridging loans, even guided the client on compliance checks to evade scrutiny, and failed to monitor excessive proportional purchases. Its subjective fault was evident. The private fund firm, by engaging in channel business in violation of regulations, abandoned independent investment decision-making, fully followed the client's instructions,配合建立违规交易架构, conducted no independent risk review, and违规 provided bridging funds, breaching its fiduciary duties.
This judgment serves as a warning for financial institutions selling high-risk products. The expert further提醒 that financial institutions must substantively履行适当性义务, not merely perform it formally; they are prohibited from actively promoting high-risk products to unsuitable investors; frontline employee conduct management is crucial for compliance, otherwise the institution bears responsibility; and if employees actively design circumvention schemes to facilitate transactions, the financial institution must bear the corresponding legal consequences.
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