"The net value of this fund is just an illusion and cannot be redeemed at all." Some investors told "Market Circle" that their fund assets have become "money in the water." Galaxy Securities, as the fund custodian, has also been accused of violating regulations in its agency sales process.The brokerage firm actually wants investors to sue itself? This dramatic scene happened to Galaxy Securities. On November 8, some investors went to the headquarters of Galaxy Securities to seek an explanation for the inability to redeem the Reagan Fund private equity products managed and distributed by Galaxy.
During the communication, a legal staff member from Galaxy Securities said: We support investors to sue or arbitrate, and we will pay whatever compensation the court awards us. The legal staff also said: I personally even support that our company should pay for the litigation costs.
According to China Times, the product center manager of Galaxy Securities also told investors: "We are willing for you (investors) to use judicial means to prosecute Galaxy."
What plot is this? Brokerages pay investors to sue themselves? But why are investors whose funds are worth millions and cannot be redeemed, unwilling to go through legal procedures?
Millions of investments "wasted"
What is it like to look at the money in your account every day but cannot redeem it?
Zhang Li from Beijing encountered this problem. On January 27, 2021, upon the recommendation of the account manager of the Shanghai Caobao Road Sales Department of Galaxy Securities, Zhang Li purchased the "Leigen Tianbao All-Weather No. 5 Phase II Private Securities Investment Fund" (hereinafter referred to as "Leigen Tianbao No. 5 Phase II") on the Galaxy Securities App, with an investment amount of 1.01 million yuan (including a commission of 10,000 yuan).
"The promotion strategy of this product is to create a new Hong Kong stock IPO, with small income fluctuations. The warning line is 0.95 yuan and the stop loss line is 0.92 yuan. It is a 'stable happiness'." Talking about why he chose this product in the first place, Zhang Li recalled.
"Later, the returns of the quantitative products I bought were really good. In comparison, I felt that the returns of Regan's products were low, so I wanted to redeem the money and invest in other products." On September 27, 2022, Zhang Li applied for redemption during the open period stipulated in the contract, but he applied three times without success. This made her very strange: "I just looked at my money. The net value of the fund was still updated until March 28 this year, but it couldn't be redeemed."
▲(Screenshot of Galaxy Securities App page. Source/Interviewee)
Zhang Li was not the only one who encountered such a "strange thing". Gao Fei from Shanghai also told ‘City World’: “At the end of February last year, on the strong recommendation of a friend, I bought a 1 million Reagan product from Galaxy Securities for the second time. Because I didn’t encounter any problems with the previous purchase and made tens of thousands of yuan after maturity, I didn’t think much about it this time. Who knew that at the end of December last year, Galaxy’s account manager told me to ‘redeem it quickly, redeem it all’, and I didn’t know that something happened to Reagan.”
Gao Fei said that after receiving the call, she and her family immediately applied for redemption on the Galaxy Securities App. "But the funds have not been received, and they have been delayed again and again. First, it was said that they would arrive in March this year, and then it was delayed until June. But it is already November, and I still haven't received the money."
‘City Circle’ has learned that there are currently a total of 52 investors like Zhang Li and Gao Fei who have been deeply involved in the second phase of Leigen Tianbao No. 5, with a total amount of nearly 100 million yuan. Among them, 2 people invested 10 million yuan each.
What is most difficult for investors to accept is that they believe that the "explosion" of the Reagan Fund was actually revealed in July last year, but Galaxy Securities, as the fund custodian, claimed that it became aware of the matter at the end of September last year. And during this period, there were still investors who purchased Reagan Fund products from Galaxy Securities.
Public information shows that in July 2022, Beijing Ruizhi Raycom Holdings Co., Ltd. (hereinafter referred to as "Ruizhi Raycom") launched a civil lawsuit against Reagan Funds because the Reagan Tianbao All-Weather No. 1 private equity fund it subscribed for was not paid on time, and the cumulative amount reached 95.3323 million yuan.
In addition, ‘City Circle’ learned that from July to August 2022, Ms. Cao and Ms. Wu from Nanjing, and Mr. Huang from Beijing subscribed for 5 million yuan, 2 million yuan, and 10 million yuan respectively through Galaxy Securities. "Sister Cao also received a principal-guaranteed and interest-guaranteed agreement issued by Reagan Fund and conveyed by Galaxy Securities." Several investors told the 'City Circle'.
On November 8 this year, some investors went to the Beijing headquarters of Galaxy Securities to ask for an explanation. When asked, "When did you know there was a problem with Reagan?" a member of Galaxy Securities' risk management team and an employee of the product center said: "September 27 last year."
Another investor questioned: "Galaxy Securities is the custodian, and every transaction of Regan must be instructed by Galaxy. In this case, why can't Galaxy supervise the flow and use of funds?"
In this regard, Galaxy Securities risk management team members and legal personnel said: Regan's product structure is very complex, and a lot of funds are invested in overseas U.S. dollar bonds. Galaxy cannot penetrate the layers of packages and monitor the movement of every fund.
“What I want is to get all my principal back”
The Reagan Fund involved was established in 2014 and is controlled by the Reagan Industrial Group Co., Ltd. (hereinafter referred to as the "Regan Group") founded by brothers Li Jinlong and Li Hailong. According to the official website, Regan Fund is a company that manages quantitative hedging assets and provides a wide range of investment, consulting and financial services to the world.
According to data from the Private Equity Ranking Network, the management scale of Reagan Fund is between 2 billion and 5 billion yuan, and it has 102 products. However, the company’s official website states: “The domestic and overseas management scale is about 10 billion.”
‘City Circle’ noticed that this private equity company, which is said to have a scale of tens of billions, has also won many industry awards. For example, "CaiTV China Hedge Fund Jiefu Award for Best Stock Strategy Hedge Fund", "Best Hedge Fund Brand Award", "CCSE Relative Value Award", "Best Fund Manager", etc.
However, since April last year, for such an honorable company, investors have questioned its "non-delivery" and "benefit transfer" on platforms such as Black Cat Complaints. In July this year, the Reagan Fund was even jointly reported by investors: "Manipulating stock prices" and "inflating stocks 200 times through reverse trading, and using fund assets to take over the market at a high level." The report involved Jinzheng Technology, Huahong Technology, Huitong Shares, Ounai New Materials, Xinken Intelligence and many other NEEQ-listed companies and Hong Kong-listed companies.
‘City Circle’ learned from Zhang Li that at present, the regulatory level has reached conclusions on the violations related to Reagan Fund.
According to the "Decisions on Administrative Supervision Measures No. 192, 193, and 194 of the Shanghai Supervision Bureau of the China Securities Regulatory Commission" provided by Zhang Li, Reagan Fund decided to issue a warning letter to Reagan Fund because it signed a share transfer repurchase agreement with investors and promised investors guaranteed principal and interest returns; used the fund's property or position to seek and transfer interests for itself or persons other than investors through related transactions; provided false information to investors, etc., which violated the "Interim Measures for the Supervision and Administration of Private Equity Investment Funds" and decided to issue a warning letter to Reagan Fund.
▲(Copy of "Decision on Administrative Supervision Measures". Provided by the interviewee)
At the same time, two legal representatives and general managers of Reagan Fund, brothers Li Jinlong and Li Hailong, were also issued warning letters.
‘City Boundary’ called the Reagan Fund several times regarding the above situation, but was unable to get through.
According to China Times, Galaxy Securities has reported the case to the Shanghai Public Security Bureau, which has jurisdiction over the private equity product, and reported the fund manager's crime of manipulating the securities and futures market. The case has not yet been filed.
On September 5 this year, Reagan Fund issued the "Announcement on the Transfer of Fund Shares" and planned to acquire the fund shares from the investors in this incident at a unit price of 1.119 yuan for the share transfer and in accordance with the proportion of each investor's shares. At the same time, the announcement showed that Reagan Fund had paid a transfer fee of 5 million to the product settlement fund collection account on July 6.
"We went to Shanghai several times to communicate with Regan and urged him to repay the money before we got the money." The aforementioned legal representative said: Tomorrow (November 9), we (Galaxy Securities) will go to Shanghai to negotiate with Regan Fund.
‘City Circle’ learned that as of November 8, approximately 30% of investors had not signed the share transfer agreement. "Only 5 million was given in total, 50,000 to each investor. What does this count? What I want is to get back all the principal." These investors are worried that once they sign the share transfer agreement, their principal will not be able to get back.
In this regard, Galaxy Securities legal staff said: "This agreement is a good thing for investors and will not affect the continued recovery of principal." However, this statement was not recognized by these investors.
Wang Jiaye, a lawyer at Shanghai Haihua Yongtai Law Firm, pointed out that signing the share transfer agreement may lead to a change in the legal relationship. He explained: "Generally speaking, before a similar share transfer agreement is signed, in terms of legal relationship, the investor and the manager (custodian) usually establish a legal relationship such as entrusted financial management. To put it simply, investors can seek explanations from the manager and agency for any violations encountered in product operation. Once signed, the corresponding legal relationship is transformed into that of the investor and the transferee."
"I agree with our company paying for it"
During the communication with Galaxy Securities, investors questioned Galaxy Securities’ failure to perform its duties diligently as an agency and fund custodian, and accused Galaxy of false sales, concealment and deception of investors.
Some investors told "Market Circle" that Galaxy Securities, as a product sales agency, the investment strategy promoted in the early stage was seriously inconsistent with the actual investment orientation in the later stage. According to the "First Liquidation Report of Legian Tianbao All Weather No. 5 Phase II Private Equity Fund" released by Reagan Fund on December 28, 2022, the fund has 5 unrealized assets. These five assets are inconsistent with the Hong Kong stock IPO promotion promoted by the product.
▲ (Screenshot of the first liquidation report of the second phase of Leigen Tianbao No. 5)
At the same time, "Galaxy Securities, as the fund custodian, when it was discovered that Reagan Fund illegally used funds for 'Chinese U.S. dollar bonds' and 'NEEQ stocks' and frequently conducted reverse transactions at abnormal prices, it did not report to the regulatory agency or disclose information to investors, which violated the Fund Law." Investor Zhang Li pointed out.
Lawyer Wang Jiaye told City Circle that the China Foundation Association clearly stipulates that the custodian has the responsibility to supervise the flow of funds. "The custodian is responsible for issuing investment instructions, while the manager is responsible for the investment strategy. Among them, the custodian is responsible for ensuring that the actual flow of funds matches the contract. For example, if the contract stipulates that the fund will invest in three directions A, B, and C, the custodian should ensure that the funds flow to A, B, and C; as for the specific investment ratio among the three, it falls within the scope of investment strategy and is the responsibility of the manager."
He also reminded investors to repeatedly confirm whether the content of the contract is consistent with the seller's commitment before signing: "If the investor does not notice the relevant terms in the contract, and the contract does not clearly stipulate the investment ratio in a specific direction, it is difficult to determine that it is the custodian's fault in this case."
"For the Reagan Fund to change its investment direction, Galaxy Securities declined to explain that it could not explain the underlying investment direction of the funds. So Galaxy Securities reviewed and reviewed the net asset value of the fund that was continuously updated until the end of March this year?" Zhang Li believes that if the net value on the Galaxy Securities App had not been growing slowly, she and other investors would not have mistakenly thought that the product was working well. "When we found out, we couldn't redeem it at all, and the net value of the fund was a false number." Therefore, they demanded that Galaxy Securities bear liability for compensation.
In response to this, the aforementioned Galaxy Securities legal affairs responded: "We support investors to use legal means to solve problems, such as prosecution or arbitration. We will pay whatever compensation the court awards us."
"I personally even agree that our company will pay the legal fees and help investors sue, and we will pay whatever amount is awarded. Of course, this is my personal opinion." The legal representative said.
However, some investors do not recognize and accept this approach. "Their company has clearly avoided risks in the contract. The 110-page contract was signed on a mobile app. Who in the right mind can read it completely?" Several investors thought: "Galaxy is just shirking responsibility. When such a problem occurs, no one within them dares to make a decision and take responsibility, so they force us to sue."
According to Zhang Li’s prediction, “Galaxy is willing to assume 30%-40% of the responsibility at most.” During the communication, the legal staff of Galaxy Securities also said: "This kind of problem has never occurred in our company, but according to relevant case searches, the custodian institution usually bears 30% (responsibility) for such incidents."
As for the distribution of responsibilities in disputes between investors and securities firms, Wang Jiaye pointed out: "Each case depends on the degree of fault of the agency and the manager."
In addition, Zhang Li told City Circle that relevant personnel in the sales department may be punished at the regulatory level.
‘City Jie’ called Galaxy Securities to verify the relevant situation, and the staff responded that “the relevant situation cannot be further verified, and it is recommended to contact the sales department directly.”
The operator at the Beijing Asian Games Village Sales Department said: "(The news) is false information. Including illegal consignment sales, we have not received notice from the supervision." He also said: "We are also waiting for the supervision."
‘City Circle’ asked, “What are you waiting for from the regulator? Is it the supervisor’s opinion?” The staff member did not respond, but suggested that the ‘City Circle’ directly ask the company level: “We are also waiting for the company to see how the company handles it.”
These investors originally chose Regen, a lower-risk product, for "stable happiness." Unexpectedly, the lockdown period ended, happiness did not wait, and the originally peaceful life was disrupted, and a lawsuit might even be involved...
(Zhang Li, Gao Fei, Ms. Cao, Ms. Wu, Mr. Huang, etc. in the article are all pseudonyms)
Author | Lu Chunfeng