The vice president of an ophthalmology hospital who ventured into founding a private equity firm had their qualification revoked, and the hired risk control officer had previously engaged in "front-running."

AI Questioning: What risks are exposed by trust-breaking personnel taking charge of compliance authority?

Cailian Press, May 10 (Reporter Feng Qijuan) “Mouse-trap warehouse” traders have actually become “gatekeepers” of private fund compliance!

The China Asset Management Association (AMAC) has just released 6 disciplinary decision documents, exposing the compliance “cover-ups” of 3 private funds. Among them, Zhejiang Yinuo is particularly described as having crossed the bottom line—allowing an investment director who had previously been penalized for “mouse-trap warehouse” trading to be reassigned as the person in charge of compliance risk control.

AMAC decided to revoke Zhejiang Yinuo’s manager registration and cancel the fund practitioner qualifications of the private fund’s legal representative, Qiao Zhongxing, and compliance risk control head, Li Lingyun. According to the investigation, Zhejiang Yinuo had two types of violations: first, there were false records in the information submitted—some product investors’ fund sources came from Qiao Zhongxing, who had others hold the fund units on his behalf; second, it failed to perform information reporting obligations as required, and did not promptly report the establishment information of related companies.

In addition, Qiao Zhongxing also engaged in other acts of submitting false information: first, in Hangzhou Tianyu’s industrial and commercial system, the shares of shareholders Fan (unnamed) and Zhao (unnamed) were in fact shares held on behalf of Qiao Zhongxing; second, for some product investors of Hangzhou Tianyu, the source of their funds was controlled by Qiao Zhongxing, and other people held the fund product units on his behalf. Before founding the private fund, Qiao Zhongxing had been a deputy head of an ophthalmology hospital and previously had no experience in asset management, yet he was quite “skillful” in operations such as evading regulation and building nominee holding structures.

Earlier this year, the Zhejiang Securities Regulatory Bureau issued warning letters to Qiao Zhongxing, as well as Zhejiang Yinuo, Hangzhou Tianyu, and Hangzhou Longli, all controlled by him. All 3 private funds had violations in information reporting and compliance risk control systems. Shortly thereafter, in March, AMAC revoked Hangzhou Tianyu’s manager registration. What is also notable is that the private fund disclosed that investment manager Wu (unnamed) is currently responsible for some compliance risk control work.

When investment research personnel simultaneously hold compliance risk control roles, it is no different from “being both the athlete and the referee.” However, this “absurd drama” was played out even more intensely at Zhejiang Yinuo—putting trust-breaking personnel in charge of compliance authority.

In May 2024, the Shenzhen Securities Regulatory Bureau had already ordered Li Lingyun to make corrections for stock trading using undisclosed information, confiscated illegal gains of 3.2654 million yuan, and imposed a fine of 3.2654 million yuan, totaling 6.5307 million yuan in penalties and forfeiture. The bureau disclosed that Li Lingyun is one of the founding partners of Yinuo Investment, actually performing the duties of an investment director and mainly responsible for Yinuo Investment’s daily operations.

AMAC also pointed out that Li Lingyun was Zhejiang Yinuo’s former investment director and is now Zhejiang Yinuo’s head of compliance risk control. This former investment director—who had previously had his penalties and forfeiture for “mouse-trap warehouse” trading exceed 6.5 million yuan—has somehow transformed into the private fund’s “compliance gatekeeper.”

Holding roles as a private fund partner and investment director, yet doing “mouse-trap warehouse” trading

The Shenzhen Securities Regulatory Bureau stated that, starting from January 2022, Yinuo Investment entrusted the management of Yu Hui Stable 1 and Tianyu Starry Sky 1, as well as 4 products under Zhejiang Yinuo, which together constituted the “Yinuo Investment account group” in this case. Li Lingyun was aware of undisclosed information such as the investment decision-making and trading status of this account group.

In March 2022, Yinuo Investment’s investment decision committee approved a resolution to buy 15 million yuan worth of Kelu Electronics stock, with Li Lingyun leading the subsequent investment decision-making, as well as placing the trades.

Between March and May 2022, Qiu (unnamed) Liang used two securities accounts, which were transferred to Li Lingyun by Zhao (unnamed) without any entrusted agreement being signed. During the implicated period, the funds in these two accounts were provided by Qiu Liang, and Li Lingyun was responsible for the investment decisions and arranged for his subordinates to trade Kelu Electronics stock. After the stock was sold, all principal and profits were transferred back to Qiu Liang’s bank account, and Yinuo Investment and Li Lingyun did not obtain any related gains.

Upon investigation, from March 21, 2022 to June 7, 2022, the trading in these two accounts and Kelu Electronics stock within the Yinuo Investment account group showed convergence; the total amount of convergent matched transactions was 25.2447 million yuan, and profits of 3.2654 million yuan were obtained.

Li Lingyun and his agent requested exemption from punishment or, alternatively, a lighter punishment under the “Private Fund Measures,” arguing that Li Lingyun did not obtain economic benefits through this conduct, and that profits from the convergent trades should not be recognized as illegal gains of Li Lingyun, nor should Li Lingyun be responsible for the gains of parties who were not subject to punishment.

The Shenzhen Securities Regulatory Bureau rejected the arguments and stated that, pursuant to the “Administrative Penalty Law of the People’s Republic of China,” illegal gains refer to the money obtained through illegal acts; and pursuant to the “Administrative Measures for Administrative Penalties for Securities and Futures Illegal Acts,” the illegal gains of securities and futures illegal acts refer to the benefits obtained through the illegal act or the losses avoided. Li Lingyun carried out the illegal act of trading stocks using undisclosed information; the bureau, in accordance with the law, determined that the benefit obtained from the act was illegal gains, which was not inappropriate.

What is worth thinking about is whether it is compliant for Shanghai Yu Hui and Zhuji Tianyu to entrust their products to Yinuo Investment for direct management, while also being responsible for investment decision-making and trading operations.

Article 27 of the “Regulations on the Supervision and Administration of Private Investment Funds” provides that a private fund manager shall not delegate investment management responsibilities to others. If a private fund manager entrusts other institutions to provide securities investment advisory services to a private fund, the entrusted institution shall be a fund investment adviser institution as stipulated in the “Fund Law.”

However, Yinuo Investment does not have private fund investment advisory qualifications. According to the AMAC disclosure, in the column “Whether it is a third-party institution qualified to provide investment advice,” it is shown as “No,” and there are also no registered adviser-type products.

Qiao Zhongxing’s “invisibility” fails: the actual controller of 3 private funds is fully in violation

In January this year, the Zhejiang Securities Regulatory Bureau disclosed that it had issued warning letters to Zhejiang Yinuo, Hangzhou Longli, Hangzhou Tianyu, and the same controlling party of these 3 private funds, Qiao Zhongxing, recorded the matter in the integrity file of the securities and futures market, and required a written rectification report within one week.

In its daily supervision of the 3 private funds, the bureau found that Zhejiang Yinuo and Hangzhou Tianyu had two types of violations: first, failing to report information to AMAC in accordance with regulations and submitting information containing false records; second, failing to establish a sound compliance risk control system, and not properly isolating risks between the actual controller and the company. Hangzhou Longli had violations as well, including failing to report information in accordance with regulations and failing to establish a sound compliance risk control system, as well as not properly isolating risks between the actual controller and the company.

It can be seen that these three related private funds almost have the same “symptoms.” As the Zhejiang Securities Regulatory Bureau pointed out, since Qiao Zhongxing was the actual controller of the 3 private funds and actually responsible for the operation and management of the above-mentioned companies, he did not diligently and prudently perform the relevant duties and obligations, and bore primary responsibility for the above issues.

In March this year, AMAC revoked Hangzhou Tianyu’s manager registration. After investigation, Hangzhou Tianyu had two types of violations:

First, it provided false registration and filing information. According to Hangzhou Tianyu’s written explanation, the shares of shareholders Fan (unnamed) and Zhao (unnamed) registered in Hangzhou Tianyu’s industrial and commercial system were in fact shares held on behalf of Qiao Zhongxing. In addition, the source of funds for some product investors of Hangzhou Tianyu was funds controlled by Qiao Zhongxing, and the related personnel held the fund product units on Qiao Zhongxing’s behalf.

Second, senior executives did not meet the requirements. Zhang Chengjia, the compliance risk control head registered at Hangzhou Tianyu, left in October 2024. As of August 2025, Hangzhou Tianyu had no new compliance risk control head. According to Hangzhou Tianyu’s explanation, Wu (unnamed) is currently responsible for some compliance risk control work, but Wu (unnamed) also serves as an investment manager.

Hangzhou Tianyu submitted two defense opinions, hoping AMAC would comprehensively consider specific circumstances that the private fund’s violations did not cause substantive harm, it actively cooperated with the investigation, and there was no subjective intent, so as to ensure the stable disposal of the existing funds, and to postpone the revocation of the manager registration. However, AMAC believed that the defense opinions did not fall within the circumstances of leniency, mitigating, or postponement, and therefore did not adopt them.

In sum, it can be seen that through the dual operations of equity nominee holding and fund unit nominee holding, Qiao Zhongxing created a “cloak of invisibility” for himself; in essence, it was an attempt to evade the regulatory responsibilities that the actual controller should bear and to escape regulatory review and verification.

Looking back, before founding the private fund, Qiao Zhongxing had no experience in asset management. Previously, he served as an accountant at Guilin Kangle Plastic Products Factory, a chief accountant in the Finance Department of the Chinese Pharmaceutical Association, and deputy head of the Ophthalmology Hospital of Hangzhou West Lake Chaorujing.

(Cailian Press reporter Feng Qijuan)