A recent court ruling has ordered a brokerage to pay substantial compensation for improperly selling high-risk financial products.
The product in question is the once-popular "snowball" structured product, which gained notoriety in 2024 after widespread losses and investor complaints.
A final judgment from the Shanghai Financial Court has been issued in a case where a listed company's chairman suffered significant losses from such products.
The court ruled that a securities firm and a private investment company bear joint liability, ordering them to pay approximately 10.04 million yuan in compensation.
Huatai Securities Co., Ltd. (ASX: 601688) has been identified as the brokerage involved, with its chairman being Wang Huiqing.
The plaintiff, Mr. Fei, is the controlling shareholder of a listed technology company based in Zhengzhou, holding about 35% of its shares.
How the Losses Occurred
Snowball products are a type of over-the-counter option derivative. Their returns are linked to the performance of an underlying asset within set price barriers, offering coupons if the price stays within a range but potentially causing losses if it falls below a lower barrier.
Introduced to China around 2018, these products became highly popular by 2021, primarily distributed by major brokerages including Huatai Securities Co., Ltd..
Court documents reveal that in September 2022, a salesperson from Huatai Securities Co., Ltd. persistently pitched the product to Mr. Fei, despite his initial lack of interest and refusal.
The salesperson eventually secured a meeting by offering a visit from a team leader from headquarters, leading Mr. Fei to agree.
Between April 2023 and August 2024, Mr. Fei purchased 23 snowball products, depositing around 66.85 million yuan in margin but ultimately recovering only about 52.5 million yuan, resulting in a loss exceeding 14.34 million yuan.
He subsequently sued both Huatai Securities Co., Ltd. and the private fund company for damages.
The Court's Rationale for the Ruling
The first-instance court found the brokerage primarily liable, assigning it 70% responsibility for the losses.
The court determined that Huatai Securities Co., Ltd. failed in its duty of suitability by improperly recommending the product to an investor who did not meet professional qualifications.
It also assisted the investor in setting up a fund channel to circumvent regulatory access rules, knowing the actual counterparty was an individual, not a qualified institution.
The private fund company was found to have acted merely as a "shell" or channel for the transactions, failing in its fiduciary duty and bearing joint liability.
Mr. Fei was deemed to bear 30% responsibility for proceeding with the transactions despite knowing he did not meet the eligibility criteria.
Brokerage's Appeal and Final Verdict
Huatai Securities Co., Ltd. appealed the decision, arguing it was dealing with Mr. Fei's company, not him personally, and was not the active promoter.
The private fund contended the losses were due to market volatility and Mr. Fei's own decisions.
The appellate court upheld the original judgment, concluding that the financial institutions, as professional entities, knowingly cooperated to violate financial regulations by enabling an ineligible individual investor to participate.
This misconduct directly caused Mr. Fei's losses by exposing him to extreme risks he could not bear and was not fully informed about.
Broader Challenges for the Firm
This legal setback is not the only challenge facing Huatai Securities Co., Ltd. this year.
Its stock performance has deteriorated significantly in 2026, with a poor start to the year and year-to-date declines that have lagged behind many industry peers.
While its revenue and profit still rank third in the industry, its growth rates in 2025 trailed the sector average.
The gap with the top two brokerages is widening, and its third-place position is under threat from ongoing consolidation within the industry, such as the proposed mergers involving other major firms.
Maintaining its competitive standing and reigniting growth presents a significant test for the new leadership team under Chairman Wang Huiqing.
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