According to publicly available reports, a judgment document recently disclosed on the China Judgments Online website details a major compensation dispute arising from a securities firm's unauthorized sales of structured financial products.
Public speculation suggests the securities company involved is Huatai Securities Co., Ltd. (SHSE: 601688), though the firm has yet to issue a formal response. The judgment states the company's domicile is in Nanjing's Jianye District, with its legal representative being Chairman Wang.
Media reports provide corroborating details, indicating a case with the docket number (2025) Hu 0112 Min Chu No. 2546, involving Huatai Securities Co., Ltd., was heard in July 2025. The case was an infringement liability dispute with a plaintiff named Fei, and the defendants were Huatai Securities Co., Ltd. and Beijing Funa Investment Co., Ltd. This docket number is confirmed in the judgment as the first-instance case number.
The judgment reveals that between April 2023 and August 2024, the plaintiff, Fei, purchased a total of 23 structured products. The securities firm and the investment company signed corresponding "Supplementary OTC Option Contract Transaction Confirmations (Domestic Equity-Linked Structured Products)" for these purchases. 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.
Details of the Regulatory Violation
According to the disclosed judgment, the process of the violation unfolded as follows. In early September 2022, an employee of the securities firm, Zhang, promoted these structured products to Fei, a major shareholder of a listed company, via WeChat. Zhang detailed product examples, emphasized the firm's competitive pricing compared to peers, and urged Fei to "quickly complete the procedures."
Fei initially declined, stating he did not intend to proceed as Zhang seemed unfamiliar with the business. Zhang then pleaded for another chance, later offering to introduce Fei to top asset managers in Shanghai, which ultimately persuaded Fei.
Understanding the Product
In simple terms, the structured product is a high-risk over-the-counter derivative. Essentially, the investor is selling a form of insurance to the securities firm. It is linked to an index or stock, offering high coupon payments if the underlying asset does not plummet. However, if the price falls below a certain barrier level, significant losses can occur. It is not a fixed-income-like product and is certainly not a guaranteed profit.
Critically, according to regulatory rules, individual investors are prohibited from directly participating in OTC options trading; counterparties must be professional institutional investors.
Circumventing the Rules
Since individuals cannot directly purchase these products, the method used was a workaround. Employee Zhang explicitly told Fei that domestic individuals could not directly trade these products and that the arrangement needed to "circumvent regulatory scrutiny."
The specific method involved using a private fund, funded by Fei himself, as a "channel." Formally, the fund company signed the agreement with the securities firm, but in reality, the capital was Fei's, the investment decisions were made by Fei, and the risks were borne by Fei. The private fund served merely as a shell. The court determined this constituted an illegal establishment of a capital channel to evade regulation.
The Court's Ruling
The Shanghai Financial Court's final judgment apportioned liability: the securities firm bears 70% responsibility and is ordered to pay approximately 10.04 million yuan in compensation. The private fund, as the channel party, bears joint liability. Fei himself bears 30% responsibility, amounting to about 4.3 million yuan of the loss.
The court reasoned that the securities firm bears the majority of the liability because it was fully aware that individuals could not participate, yet it actively promoted the product, designed the circumvention scheme, provided bridge financing, and coached the client on how to answer compliance call-backs, demonstrating "clear subjective fault."
Fei was assigned 30% liability because he knowingly participated in the transactions despite being ineligible and played a dominant role in the specific operations.
Key Takeaways for Investors
This case offers several critical warnings for high-net-worth investors. First, regulatory thresholds are not mere formalities; they are protective measures designed to prevent investors from engaging with high-risk products they may not understand. Finding ways around them is not a display of capability but a risky gamble.
Second, high potential returns are intrinsically linked to high risks. The double-digit coupon rates offered by such products correspond directly to the risk of significant principal loss. When a salesperson claims an investment is "guaranteed," investors should scrutinize the contract, particularly the clauses detailing potential losses.
Third, investors must also bear responsibility for their losses. This case illustrates that even if a financial institution violates rules, an investor who knowingly participates may still share the blame. The principle of assuming the consequences of one's actions carries legal weight, as evidenced by the 4.3 million yuan assigned to Fei.
Fourth, for financial institutions, employee misconduct is not merely a "personal act." The securities firm in this case did not successfully avoid liability by claiming the employee acted independently. The court ruled that the employee's actions on WeChat—promoting the product, designing the circumvention plan, and assisting with financing—constituted acts within the scope of employment. Therefore, the institution is legally accountable. In other words, frontline employee violations implicate the firm. If a financial institution's compliance management is ineffective, it will ultimately "pay the bill" for its employees' regulatory breaches.
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