Zhu and others' illegal public deposit-taking case — in accordance with law, crack down on illegal fundraising crimes carried out under the guise of private equity investment funds

Cao Miao

Basic Case Facts

Since 2018, Zhu and others, under the name of a certain company’s branch outside the province,借用 the business model of private funds. They used收益 with an annualized return rate ranging from 11.5% to 12% as bait, and promised to repay principal and pay interest in the form of currency within a certain period. They organized salespersons to advertise to the general public, allowed ineligible investors to subscribe to private fund products in a “group buy” manner, and absorbed funds from unspecified fund-raising participants. After a certain company’s “other-category private investment fund manager” qualification was revoked and canceled by the China Securities Investment Fund Association, Zhu and others continued to sell private fund products using the original model. As of the time of the case, the amount of funds illegally raised totaled over 500 million yuan, causing losses of 100 million yuan to fund-raising participants.

Judgment Result

The trial court held that Zhu conspired with Xu and others to violate national financial regulation laws by借用 the business model of private funds. Through channels such as investment recommendation meetings and word-of-mouth, they conducted public promotion, promised to repay principal and pay interest in the form of currency within a certain period, and raised funds from the general public. The amount involved was especially huge, and their conduct constituted the crime of illegally absorbing public deposits. Accordingly, pursuant to law, the court sentenced Zhu and others to fixed-term imprisonment and other criminal penalties, and ordered them to make restitution to compensate the losses of the fund-raising participants.

Typical Significance

To regulate activities of private investment funds, protect the lawful rights and interests of investors and relevant parties, and promote the healthy development of the private investment fund industry, laws and regulations including the “Securities Investment Fund Law” and the “Interim Measures for the Supervision and Administration of Private Investment Funds” have made specific provisions. The China Securities Investment Fund Association has formulated related self-regulatory rules. However, driven by self-interest, there have been recurring occurrences of violations by some qualified “real private funds” and certain unqualified “fake private funds” that improperly raise funds. This case is an illegal fund-raising case that occurred in the private investment fund sector. Although the company where the defendant Zhu and others worked was registered and filed with the fund industry association and possessed the qualification of an “other-category private investment fund manager,” it violated the principles of non-public offering and specificity of fundraising targets. It allowed ineligible investors to subscribe to private investment fund products through “group buys,” which amounts to conducting illegal fund-raising under the guise of private investment funds. Moreover, after the relevant qualifications were revoked, they did not stop. Therefore, judicial authorities pursued criminal liability. The judgment in this case both warns practitioners in the private investment fund sector to operate in accordance with laws and regulations, and reminds the broad investing public to be vigilant against private investment fund products that do not set an investor threshold or that set a relatively low investor threshold, so as to avoid falling into the traps of illegal fund-raising and to protect their own “wallet.” (Source: Jiangxi Higher People’s Court)