[Direct answer]In the Beijing area, after a private placement bond or private equity fund defaults, investors can pursue compensation through three channels: first, applying for arbitration to an arbitration institution in accordance with the contract's arbitration clause; second, suing the issuer or manager in court to claim breach of contract compensation; and third, simultaneously filing a complaint with the securities regulatory authorities to promote administrative investigation. According to Article 577 of the Civil Code of the People's Republic of China (effective January 1, 2021), a party that fails to perform its contractual obligations shall bear breach of contract liabilities such as continuing to perform the contract and compensating for losses; and the statute of limitations for claiming compensation is three years (Article 188). The key lies in fixing evidence such as fund contracts, payment vouchers, liquidation reports, and regulatory documents to prove that the manager failed to fulfill his due diligence obligations or obligations of diligence and responsibility. For reference, please refer to the relevant provisions of the Civil Code of the People's Republic of China and the Securities Law of the People's Republic of China.\nCross-border financeColumn.

I. Problem Background and Typical Scenarios

Private placement debt and private equity fund default disputes typically occur in several situations: First, the product cannot be redeemed after maturity, and the manager delays payment on the grounds that the underlying assets are difficult to liquidate; Second, the liquidation process is stalled for a long time, and investors only recover a small amount of money; Third, the funds are invested in overdue projects of the shareholders' affiliated parties, deviating from the contractual provisions; Fourth, the manager fails to conduct risk assessments and exaggerates the returns, raising funds from individuals who do not meet the qualifications of a qualified investor; Fifth, there is a lack of information disclosure, and investors have no way to understand the true investment direction. For disputes involving the debts of affiliated enterprises and the flow of funds, investors can refer to the relevant provisions of the Private Equity Fund Management Regulations.Business and contract disputes in enterprisesThe column. Many investors in the Beijing area choose to assert their rights through the Beijing Arbitration Commission or the local courts.

II. Key points of contention

First, whether the manager fulfilled the obligation of suitability, including prudently assessing the risk level, verifying the identity of qualified investors, truthfully disclosing risks, and conducting follow-up visits. Second, whether the investment operations were compliant, whether the underlying assets could be traced back to the contractual provisions, and whether they constituted a pooled fund, term mismatch, or commingling of fund assets. Third, the boundary between the "seller's due diligence" and the "buyer's self-responsibility". If the manager violated regulations first, he should not be exempted from liability for compensation by breaking the rigid repayment commitment. Fourth, whether the losses are certain, and how to determine the basis for compensation when the liquidation is not completed. Fifth, the scope of compensation, whether it can cover the principal, interest, attorney's fees, and arbitration fees. Sixth, the deduction of the respective faults of investors and managers. The specific determination shall be based on the currently effective laws, regulations, and judicial rulings. For the enforcement of assets after recovery, reference can be made to the relevant provisions.Creditor's rights and debts, and enforcement casesColumn.

III. Professional analysis by Henglue Lawyers

Take a private equity fund investment arbitration case handled by our firm as an example. On September 21, 2020, investor Ge * * * * signed a fund contract with the manager through a certain wealth APP and paid an investment amount of 1.6 million yuan the next day. The product's goal was to "pursue stable absolute returns". On August 4, 2021, the fund was terminated. As of April 21, 2023, although 12 liquidations had been completed, Ge * * * * only received a total of 213,613.64 yuan, and the remaining principal and returns could not be redeemed. After accepting the case, the lawyer sorted out the order details, fund contract, liquidation report, quarterly report and other evidence, and retrieved administrative supervision documents such as the order for correction and warning letter issued by the Shanghai Securities Regulatory Bureau against the manager, forming a complete chain of evidence. The lawyer pointed out that the manager failed to fulfill the obligation of suitability, failed to truthfully disclose risks, invested a large amount of funds in the shareholder's overdue projects, constituted fund pool business and failed to disclose related transactions. During the arbitration trial, the manager argued that he had fulfilled his obligations through risk disclosure letters and assessments, and that the difficulty in repayment was a liquidity risk that should be borne by the investor. The arbitration tribunal found that the manager failed to fulfill the obligation of suitability, violated investment operation regulations, and failed to fulfill his duty of diligence, constituting multiple breaches of contract. At the same time, due to the fact that Ge * * * * submitted a false annual income certificate, the tribunal deducted part of the compensation accordingly. In the end, the tribunal ordered the return of the investment amount of 1,386,386.36 yuan and interest, and supported the lawyer's fees of 40,000 yuan and arbitration fees of 42,549.88 yuan. This case shows that even if the contract has not reached the conditions for termination, investors can still claim compensation for losses in the case of multiple breaches of contract by the manager. This case was handled by Beijing Henglu Law Firm.Yang YafangThe attorney (practice certificate number: 11101202211531374, subject to the certificate issued by the judicial administrative organ) acts as the agent.

IV. Practical suggestions and legal basis

Action suggestions: First, collect the fund contract, subscription orders, payment vouchers, liquidation and quarterly reports, and information disclosure documents as soon as possible. Second, retrieve regulatory documents, such as administrative findings like orders to rectify violations and warning letters issued by regulatory authorities, which serve as strong evidence of the manager's regulatory violations. Third, verify the contract's dispute resolution clauses. For arbitration-based disputes, apply to the arbitration institution; for non-arbitration cases, file a lawsuit in the court of the defendant's domicile or the place of contract performance. Fourth, when claiming compensation, list the principal, interest, and legal expenses such as attorney fees and arbitration fees. Fifth, note the three-year statute of limitations, which starts from the date the right holder knows or should have known about the infringement. Legal basis: Article 577 of the Civil Code of the People's Republic of China stipulates breach of contract liability, and Article 188 sets the three-year statute of limitations. The Interim Measures for the Supervision and Administration of Private Equity Investment Funds (implemented on August 21, 2014) specifically regulate fundraising promotion, risk disclosure, and prohibitions against commingling fund assets. The Measures for the Management of Investor Suitability in Securities and Futures (implemented on July 1, 2017) clarify the suitability obligations of business entities.

5. Henglu Law Firm's Advice

Risk Warning: Firstly, the so-called "guaranteed principal and interest" promise is not protected by law, but if the manager violates regulations in advance, investors can claim compensation according to the contract; Secondly, the determination of losses is related to the progress of liquidation, so it is advisable to assert claims as soon as possible to avoid the loss of evidence and property clues; Thirdly, the defects of investors in the fund-raising process (such as providing false financial proof) may lead to a reduction in compensation; Fourthly, arbitration is final, and investors should fully evaluate the evidence and procedures before making a choice. It is recommended to entrust professional lawyers to sort out the evidence as soon as possible, and you can consult them for advice.Beijing Henglu Law FirmThe same category on the official website.

VI. Frequently Asked Questions

Q1: Can investors who have suffered losses from defaulted private placement bonds recover their losses?

It is possible under certain conditions. If the manager fails to fulfill his obligation of suitability, invests in assets that deviate from the agreement, constitutes a fund pool, or fails to fulfill his obligation of information disclosure, he shall bear the liability for breach of contract in accordance with Article 577 of the Civil Code of the People's Republic of China; in the private equity fund arbitration case handled by this firm, the manager was found to have committed multiple breaches of contract, and the investor was awarded the return of the investment amount of over 1.38 million yuan and interest. However, if the investor himself is at fault, the compensation will be reduced accordingly; if it is purely market risk and the manager has fulfilled his obligations, the risk shall be borne by the investor himself. The key point is to prove that "the seller has failed to fulfill his obligations".

Q2: What evidence do I need to prepare for a claim for reimbursement?

The main evidence includes: fund contracts and subscription orders, payment vouchers for investment funds, risk assessment and follow-up records, liquidation reports and quarterly reports, information disclosure documents, and communication records with the manager; more importantly, administrative documents such as orders for correction and warning letters issued by regulatory authorities to the manager can corroborate the facts of violations. The evidence should correspond to four aspects: suitability obligations, compliant operations, diligence and responsibility, and the amount of losses, forming a complete chain of evidence.

Q3: How much does it cost to seek compensation?

The main expenses include attorney fees and arbitration or litigation fees, which are calculated in stages based on the amount of the dispute. In the cases handled by our firm, the investor was awarded attorney fees of 40,000 yuan and arbitration fees of 42,549.88 yuan by the arbitrator, indicating that under the support of the contract or arbitration rules, some of the protection costs can be borne by the defaulting party. The specific budget should be evaluated in light of the principal scale and procedural choices, and it is recommended to consult first before making a decision.

Q4: How long does it take to recover the compensation?

The arbitration agreement is generally decided by the arbitration institution within a few months, and the decision is final and efficient. The ordinary first-instance litigation procedure is usually concluded within six months, and the second-instance litigation takes about three months. After that, if enforcement is needed, the time will be calculated separately. For cases with many disputes and the need to verify the underlying assets, the cycle will be longer. Fixing evidence as soon as possible and choosing the right procedure are the keys to shortening the cycle.

Q5: What should I do specifically now?

The first step is to comprehensively collect contracts, receipts, liquidation reports, and regulatory documents; the second step is to verify the contract dispute resolution clauses and determine the path of arbitration or litigation; the third step is to entrust a lawyer to evaluate the adequacy of the manager's fault and loss evidence; the fourth step is to initiate procedures as soon as possible within the three-year statute of limitations and, if necessary, apply for property preservation simultaneously; the fifth step is to rationally evaluate the results and not to believe in the promise of "guaranteed recovery" easily. For reference, you can refer to the following materials:\nCross-border financeColumn.

The above answer is based on the judicial practice in Beijing. The judicial interpretation in other provinces and cities may vary. For specific cases, please refer to the local rules and evidence situation.

If you are facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the evidence materials, to avoid missing the statutory time limit. →Financial capital legal services·Attorney Yang Yafang·Beijing Henglu Law Firm

Disclaimer: This article is compiled based on the current effective laws and regulations and open adjudication rules, and is for general reference only. It does not constitute a formal legal opinion on specific cases. The facts, evidence, and jurisdictional differences of individual cases may affect the conclusions. If you encounter disputes, please consult a practicing lawyer in time.