[Case Summary]This case involves an arbitration dispute over a private equity fund investment. Investor Ge * purchased a private equity fund from A Investment Management Co., Ltd. for 1.6 million yuan. After the fund was terminated and liquidated, only 213,613.64 yuan was paid out, and the remaining principal and profits have been delayed for a long time. Beijing Henglu Law FirmYang YafangThe agent, Ge ***, applied for arbitration to the Beijing Arbitration Commission, pointing out that the manager failed to fulfill its suitability obligations, engaged in pooled fund operations, and failed to fulfill its due diligence obligations, among other breaches of contract. The core disputes include: the fulfillment of suitability obligations, the compliance of investment operations, and liability for compensation. The arbitration tribunal found that the manager committed multiple breaches of contract and ordered it to return the investment funds of 1,386,386.36 yuan and interest, attorney's fees of 40,000 yuan, and arbitration fees of 42,549.88 yuan. Applicable laws: Interim Measures for the Supervision and Administration of Private Equity Investment Funds, Measures for the Management of Investor Suitability in Securities and Futures, etc.

I. Review of the Case

"What should I do if I can't get my private equity investment back?" and "Can I sue the fund manager for compensation if the fund collapses?" are the most worrying questions for investors. On September 21, 2020, investor Ge * * * signed the "No. * Investment Fund Contract" with A Investment Management Co., Ltd. through the "A Wealth APP" to subscribe to the private equity fund product issued by the company. The contract stipulated that the fund's term would last until September 30, 2020, with the investment objective being "to pursue stable absolute returns". The next day, Ge * * * paid a subscription fee of 1.6 million yuan to the fund's collection account, and on September 24, the respondent confirmed his holding shares. However, the fund failed to deliver stable returns as promised, and on August 4, 2021, the fund in question was terminated. As of April 21, 2023, although the fund had completed 12 liquidations, the remaining assets could no longer be monetized. Ge * * * only received a total of 213,613.64 yuan in liquidation proceeds, and the remaining principal and returns remained unpaid, putting his life savings at risk of significant losses. Investigation revealed that A Company, as the fund manager, had serious problems throughout the entire fundraising, investment, and exit process: it failed to fulfill its suitability obligation to Ge * * *, failed to disclose risks truthfully, deviated from the contract by investing a large amount of funds in the overdue projects of its shareholder B Group during the investment operation, and the series of funds it managed exhibited characteristics such as rolling issuance and term mismatch, constituting a pooled fund business. It also failed to fulfill its information disclosure obligations as required. After repeated unsuccessful communication, Ge * * * entrusted lawyer Yang Yafang to act as his attorney and filed an arbitration case with the Beijing Arbitration Commission.

II. The focus of the case

  • Focus 1: Whether the fund manager has fulfilled its obligation of suitability.Did you carefully assess the risk level and conduct follow-up visits to confirm that Ge ** meets the criteria for a qualified investor?
  • Focus 2: Whether the fund investment operation is compliant and whether it constitutes a pool of funds.Is the underlying asset in line with the contractual provisions? Have the related-party transactions been disclosed? And has the fund's property been commingled?
  • Focus 3: The liability for compensation for the management's breach of contract and the investors' losses.Does "breaking the rigid redemption guarantee" exempt managers from their statutory obligations, and how is the scope of compensation determined?

III. The professional intervention of Hengluo Law Firm

The party concerned (the applicant, Ge **) claimed that:Company A failed to fulfill its obligation of suitability, failed to truthfully disclose risks, operated the investment in a manner deviating from the contractual agreement, constituted a pooled fund business, failed to disclose related-party transactions, and seriously violated the fund contract agreement and statutory duties of diligence and responsibility, resulting in the failure to achieve the contractual purpose. We request the termination of the contract, the return of the investment amount of 1.6 million yuan, the payment of interest losses, the assumption of 40,000 yuan in legal fees, and all arbitration fees.

The respondent (Company A) argued that:The contract represents the true intention of both parties, there are no grounds for termination, and the company has fulfilled its suitability obligations through risk disclosure documents, APP risk assessments, and other means; the fund's investment direction complies with the contract, with the underlying assets mainly being A Trust-related products, and there is no disclosure omission; redemption depends on the liquidation of underlying assets. Difficulties in payment due to objective factors such as the COVID-19 pandemic constitute liquidity risks and should be borne by investors themselves; the fund is still in the liquidation stage, and actual losses have not yet occurred.

Legal Opinion by Hengluo Law Firm:Yang YafangAfter accepting the client's entrustment, the lawyer conducted comprehensive and meticulous agency work, sorting out key evidence such as order details, client feedback forms, fund contracts, APP screenshots, liquidation reports, quarterly reports, and private equity fund public disclosure information, and retrieved administrative supervision documents from the Shanghai Securities Regulatory Bureau, including the "Order for Correction Measures" and the "Decision to Issue a Warning Letter", to form a complete chain of evidence. The lawyer put forward the core opinions: First, the respondent failed to fulfill its suitability obligation. Not only did it exaggerate the returns and downplay the risks in the contract and APP, but it also failed to prudently assess the fund's risk level. Moreover, Ge ** was not a legally qualified investor, and the respondent did not conduct follow-up verification as required. The Shanghai Securities Regulatory Bureau's administrative findings have fully confirmed this point; Second, the respondent committed major breaches of contract. The investment operation deviated from the contractual provisions. The underlying assets were not all the A Trust Collective Trust Plan stipulated in the contract, and it constituted a fund-pooling business. It failed to disclose related-party transactions truthfully, and during the liquidation stage, it neglected to fulfill its duties and failed to take legal action in a timely manner to prevent losses from escalating; Third, "breaking the rigid redemption" does not exempt managers from their legal obligations. In the case of "sellers' negligence of their duties", losses should not be borne by "buyers"; Fourth, even if the contract does not meet the conditions for termination, the respondent should compensate Ge ** for all losses based on multiple breaches of contract.

IV. Outcome of the case

After reviewing the case, the Beijing Arbitration Commission summarized three key disputes and concluded the following: First, the respondent failed to fulfill its suitability obligation. It only submitted risk disclosure documents, call-back recordings, and evaluation questionnaires with questionable authenticity, without providing sufficient evidence to demonstrate that it fully fulfilled its obligations to understand clients, products, and match investors with products. Moreover, the Shanghai Securities Regulatory Bureau has already issued an administrative ruling, and the arbitration tribunal legally confirmed that the respondent failed to fulfill its suitability obligation. At the same time, it pointed out that Ge * submitted a false annual income certificate and should bear corresponding responsibility. The arbitration tribunal deducted part of the compensation accordingly. Second, the respondent violated investment operation regulations and failed to fulfill its duty of diligence. Although the fund in question was invested in the private equity funds specified in the contract, it failed to provide evidence that the underlying assets met the contractual requirements. Moreover, the Shanghai Securities Regulatory Bureau determined that the series of funds issued by the respondent constituted fund pool operations and failed to disclose related-party transactions, violating the provisions of the "Interim Measures for the Supervision and Administration of Private Equity Investment Funds" regarding the prohibition of commingling fund assets. Third, although the request for contract termination was not supported, the fund in question has been in liquidation for over three years. The respondent has only paid a small amount of compensation and failed to proceed with the liquidation after April 2023, which has actually caused losses to Ge *. The respondent should bear compensation liability. The arbitration tribunal clarified that "breaking the rigid redemption" does not exempt managers from their statutory obligations, and the premise of "buyer beware" is that "sellers fulfill their responsibilities". Final award: The respondent shall pay the applicant an investment amount of 1,386,386.36 yuan (deducting the already paid 213,613.64 yuan); based on the amount of 1,386,386.36 yuan, pay interest from September 8, 2023, at the one-year loan market interest rate announced by the National Interbank Funding Center during the same period; pay the applicant's attorney's fees of 40,000 yuan; and the arbitration fees of 42,549.88 yuan shall be borne by the respondent. The above-mentioned amounts shall be paid within 10 days from the date of delivery of the award. Any overdue payment shall be subject to double interest on the debt during the delay in performance. 北京仲裁委员会经审理，归纳出三个争议焦点并认定：第一，被申请人未履行适当性义务，仅提交风险揭示书、回访录音及真实性存疑的测评问卷，未提交充分证据证明其全面履行了解客户、了解产品、匹配投资者的义务，且上海证监局已作出行政认定，仲裁庭依法确认其未尽适当性义务；同时指出葛某某提交虚假年收入证明亦应承担相应责任，仲裁庭酌情扣减部分赔偿款。第二，被申请人投资运作违规、未履行勤勉尽责职责，案涉基金虽投向合同约定的私募基金范围，但未能举证证明底层穿透资产符合合同约定，且经上海证监局认定其发行的系列基金构成资金池业务，未如实披露关联交易，违反《私募投资基金监督管理暂行办法》关于禁止混同基金财产的规定。第三，虽对解除合同请求不予支持，但案涉基金终止清算三年有余，被申请人仅兑付少量款项且2023年4月后未推进清算，已实际造成葛某某损失，应承担赔偿责任；仲裁庭明确“打破刚性兑付”并非免除管理人法定义务，“买者自负”的前提是“卖者尽责”。终局裁决：被申请人向申请人支付投资款1,386,386.36元（扣除已兑付的213,613.64元）；以1,386,386.36元为基数，按同期全国银行间同业拆借中心公布的一年期贷款市场报价利率，支付自2023年9月8日起的利息；向申请人支付律师费40,000元；本案仲裁费42,549.88元由被申请人承担；上述款项于裁决书送达之日起10日内付清，逾期加倍支付迟延履行期间的债务利息。

5. Henglu Law Firm's Reminder

This case is handled by Beijing Henglu Law Firm.Yang YafangAgent. Private equity securities funds are non-publicly raised products targeted at qualified investors, with the core characteristics of "professional operation and risk self-bearing", and there is absolutely no guarantee of principal and yield. In this case, Attorney Yang Yafang successfully helped investors turn the tables in complex financial disputes through rigorous legal logic, solid evidence organization, and a deep understanding of financial regulatory rules. Investors should strengthen their risk prevention awareness, enhance their self-protection capabilities, and invest rationally and in compliance with regulations. Before subscribing to private equity funds, investors should verify their status as qualified investors and the fund manager's fulfillment of due diligence obligations. In the event of a fund default, they should promptly entrust professional lawyers to claim compensation from the fund manager through arbitration or litigation.

VI. Frequently Asked Questions (FAQ) about Private Equity Fund Cases

  1. Q: What should I do if I can't get back the money I invested in private equity?
    A:First, check whether the manager has fulfilled his/her obligation of suitability, and whether the fund contract and the underlying assets are consistent with each other. Gather contracts, liquidation reports, and regulatory documents, and promptly entrust a lawyer to apply for arbitration or litigation.
  2. Q: If a fund collapses, can investors sue the fund manager for compensation?
    A:Yes. If the manager fails to fulfill his/her obligation of suitability, constitutes a fund pool, or causes losses due to negligence of duty, the investor may claim compensation. The "breaking of the guarantee of fixed redemption" does not exempt the manager from his/her statutory responsibilities.
  3. Q: What does the obligation of appropriateness include?
    A:It includes understanding the client, understanding the product, selling the appropriate product to the appropriate investor, as well as risk disclosure, qualifying investor confirmation, and follow-up confirmation, among other steps.
  4. Q: Is it legal for private equity funds to guarantee principal and returns?
    A:It's illegal. Private equity funds are strictly prohibited from guaranteeing principal and returns. Any promotion of "no risk, stable returns" is in violation of regulations, and investors should be vigilant.
  5. Q: Which is more suitable for fund disputes, arbitration or litigation?
    A:Many fund contracts stipulate arbitration clauses, and investors usually apply for arbitration to the agreed arbitration committee in accordance with the contract. Arbitration is final and binding, and is more efficient.