For just 5,000 yuan, this veteran private equity firm received a "fine"

What can five thousand yuan do?

In first-tier cities in China, this might cover two nights at a five-star hotel, or a bicycle, or a bottle of good red wine.

But in the private equity world, a registered private fund with nine official employees has given a new answer through actual actions:

With just five thousand yuan, you can rent a legitimate private fund license, help you package unknown assets of a “pseudo gold exchange,” and then sell it to investors.

Of course, this absurd business was subject to “severe penalties” by relevant authorities.

Overstepping Boundaries in “Trustee” Business

The main party in this case is a company named Shanghai TangX Investment Management Co., Ltd. (pseudonym, hereinafter “TangX Investment”), whose violation began with a clear “overstep.”

According to a disciplinary decision issued recently by the Asset Management Association:

On November 8, 2021, this private fund institution signed a “Trust Management Agreement” with a local company named Shanghai ZhongXX Construction & Decoration Engineering Co., Ltd. (abbreviated “Construction Company”).

The agreement stipulated that TangX Investment was entrusted to serve as the trustee for the transfer of asset income rights involved in the “Rongchuang Stable Profit No. 1 Enterprise Credit Transaction Agreement,” responsible for full-cycle management, and charging a management fee of 0.8% of the actual transfer amount.

This “business” was later judged by the association to involve a private fund institution, TangX Investment, engaging in activities unrelated to fund management and with potential conflicts of interest.

Unexpected Twists in the Business

The details are somewhat “twisted.”

As mentioned earlier, in November 2021, TangX Investment and the Construction Company signed an agreement to serve as the trustee for the transfer of assets involved in a credit transaction.

Subsequently, between November 19, 2021, and January 25, 2022, the Construction Company transferred a total of 1.32 million yuan of asset income rights to three individuals, and TangX Investment received a trustee management fee of 9,330.02 yuan (net of expenses, actual receipt of 5,203.4 yuan).

The critical issue was that the related credit transaction was issued on a platform called “GuiX Over-the-Counter Market Co., Ltd.”

During the transaction period, this platform was revoked of its financial asset trading venue qualification by the local financial regulatory bureau in Guizhou. The related assets immediately became products of a “pseudo gold exchange.”

Post-incident verification shows that in December 2021, the Guizhou Provincial Financial Supervision and Administration issued an announcement canceling the business qualification of GuiX Over-the-Counter Market Co., Ltd. and five other financial asset trading venues in Guizhou, ceasing their financial asset trading activities and continuing to perform original exchange-related obligations and risk management.

Persisting in Trading?

During the transaction, when issues arose with the assets, a natural response would be to stop trading.

However, for unknown reasons, neither the private fund, the individuals, nor the Construction Company stopped the transactions.

Thus, trading continued around the “problematic assets” mentioned above.

Subsequently, the disciplinary decision directly judged: (the) product involved in the case is a typical “pseudo gold exchange” product.

Considering that the case occurred in 2021, investors at that time likely had no concept of the later well-known underground asset and financing default cases.

But as a professional institution, TangX Investment should have had full compliance awareness. Ultimately, this private fund institution allowed the related transactions to proceed and collected management fees, which, to some extent, provided a “channel” and “credit enhancement” for this non-compliant transaction.

Later, they faced a series of disputes and investigations, which was probably unavoidable.

What is the background of the institution?

According to registration data: TangX Investment was established in 2014, with a management scale of 0-500 million yuan, and nine full-time employees.

The founder of this private fund previously held positions in various industrial companies and had established five products.

As mentioned earlier, TangX Investment was entrusted to serve as the trustee for the transfer of asset income rights involved in the “Rongchuang Stable Profit No. 1 Enterprise Credit Transaction Agreement.”

However, this product was not listed in the private fund’s product registration details.

This constitutes another “doubt” worth discussing.

Crossing the Key Red Line

According to relevant authorities’ assessments, TangX Investment’s above-mentioned “overstep” behavior directly violated regulatory red lines.

Based on the disciplinary decision, this behavior directly contravened Article 4 of the “Several Regulations on Strengthening the Supervision of Private Investment Funds,” and Article 8 of the “Internal Control Guidelines for Private Fund Managers.”

The former stipulates:

“Private fund managers shall not directly or indirectly engage in activities such as private lending, guarantees, factoring, pawnbroking, financial leasing, online lending information intermediary, crowdfunding, over-the-counter financing, or any other business that conflicts with or is unrelated to private fund management.”

The corresponding clause in the latter states: “Private fund managers shall follow principles of professional operation, with clear main business, and shall not engage in other businesses unrelated to private fund management or with conflicts of interest.”

Ultimately, the Asset Management Association issued a warning disciplinary action against TangX Investment and recorded it in the integrity archive.