[Direct answer]In the Beijing area, in principle, the borrower shall bear the responsibility himself, and the lender has no right to claim the agreed interest and profits. Off-exchange margin financing is an unapproved financing and short-selling business. According to Article 120 of the Securities Law of the People's Republic of China (amended on December 28, 2019 and implemented on March 1, 2020), except for securities companies, no units or individuals may engage in securities financing and short-selling and other businesses. Article 153, Paragraph 1 of the Civil Code of the People's Republic of China stipulates that civil legal acts that violate the mandatory provisions of laws and administrative regulations are invalid. After the contract is invalid, the parties shall return the property according to Article 157 and bear the liability for their faults. The principal shall generally be returned, and the agreed interest and profits shall not be supported. The losses caused by a margin call shall be borne by the borrower himself.

1. Problem background and typical scenarios

Off-exchange financing is typically provided by the financing party, who provides funds and accounts. The borrower pays a deposit and interest, and is forced to sell if the position reaches the liquidation level. Online platforms often attract customers with high leverage and quick loan disbursement, but the risks lie in fund security, the timing and method of forced liquidation, and the division of responsibilities after losses.

II. Key points of contention

First, the validity of the contract. Contracts that are named as loans but are actually equity financing arrangements are often deemed invalid due to evading regulatory restrictions on the source of funds, investment targets, and leverage ratios. Second, the consequences of invalidation. The lender's claim for agreed interest and profits is usually not supported, and the borrower's request for the lender to compensate for investment losses also lacks basis. However, there is often room for the return of the principal. Third, the allocation of fault. If both parties knew of the violation but still participated in the transaction, the court will determine the proportion of liability based on the degree of fault. In serious cases, they may also face criminal liabilities such as illegal business operations, and the boundaries of which can be referred to for reference.Criminal defense and criminal case filingColumn.

III. Professional analysis by Henglue Law Firm

When handling such disputes, Henglue Law Firm focuses on three key tasks: First, reconstructing the transaction structure, clarifying the ownership of funds, the account controller, and the process of loss generation, to avoid confusion with the investment relationship; Second, securing key evidence, including the capital-sharing contract, account operation records, transfer vouchers for margin and interest, position closing notifications and transaction details, chat and call records. These materials directly affect the determination of the proportion of fault; Third, evaluating the claim path. Investors typically demand the return of the remaining principal, while capital providers often only receive support for the principal portion when claiming interest and principal. Those claiming compensation for losses must provide evidence of the other party's fault and causal connection. The promise of "guaranteed high returns" itself is a risk signal.

IV. Practical suggestions and legal basis

The main legal basis includes: Article 120 of the Securities Law of the People's Republic of China (amended on December 28, 2019 and implemented on March 1, 2020) regarding the exclusive operation of financing and short selling businesses; Articles 153, 157 of the Civil Code of the People's Republic of China (adopted on May 28, 2020 and implemented on January 1, 2021); the "Memorandum of the National Court's Civil and Commercial Trial Work Conference" (No. 254 of 2019) regarding the validity of off-exchange financing contracts; Article 225 of the Criminal Law of the People's Republic of China (implemented on October 1, 1997 and amended on December 26, 2020) regarding the crime of illegal business operations. Suggestions: 1. Immediately preserve all transaction and communication evidence after closing positions; 2. Clarify the flow of funds, distinguishing between principal, interest, and profits; 3. Do not sign confirmation documents such as "assuming losses yourself" and "waiving recourse"; 4. For large amounts, timely assess the feasibility of enforcement, and refer to relevant provisions for fund investigation and control if necessary.Creditor's rights and debts, and enforcement.

5. Henglue Law Firm's Reminder

The legal consequences of participating in off-exchange financing are two-way: the financier cannot obtain the agreed interest and profits, and the borrower also finds it difficult to transfer the losses caused by margin calls to the other party. The law will not guarantee the investment decisions themselves. In such disputes, attention should be paid to the urgency of the statute of limitations and evidence preservation, and the compliance issues of the financing structure can be referred to for reference.\nFinancial capital and cross-border transactions involving foreign entities.Beijing Henglu Law FirmTip: Rather than arguing about who should bear the losses after the fact, it's better to stay away from illegal margin financing in advance.

VI. Frequently Asked Questions

Q1: Can I claim compensation from the funding provider if I suffer a margin call and lose money?

It's usually difficult to obtain support. To claim compensation, you need to prove that the funding provider was at fault and that there is a causal relationship with the loss. Only when the liquidation clearly violates the agreement or involves fraud, might you be able to obtain partial compensation.

Q2: What evidence do I need to prepare?

The margin financing contract and supplementary agreement, transfer vouchers for margin and interest, account operation records, position closing notifications and transaction details, chat and call records, as well as bank statements proving the calculation of losses.

Q3: What is the approximate cost of protecting one's rights?

The litigation fees are calculated according to the amount of the disputed subject matter and are prepaid by the plaintiff. The attorney's fees are usually calculated as a percentage of the subject matter or negotiated in stages. There are additional preservation fees involved in the investigation and control of funds. The specific fees shall be subject to the terms of the entrustment contract and the standards announced by the court.

Q4: How long does a lawsuit take?

The ordinary procedure of the first instance usually lasts six months, and the summary procedure takes about three months. If criminal proceedings are ongoing at the same time, the civil case may be suspended, and the overall duration is estimated based on the connection between the two procedures.

Q5: What should I do first?

First, preserve the evidence by documenting the contract, transfer transactions, account operations, and position-closing records, and then organize the timeline. Next, calculate the principal and the amount of losses to decide whether to negotiate the return of the principal or proceed directly to litigation.

The above Q&A is mainly based on the judicial practice in the Beijing area. There may be differences in the adjudication opinions in different regions. It is recommended to consult a professional lawyer based on the specific circumstances of the case.

VII. Relevant public cases (for reference only, not handled by our firm)

The following cases are all sourced from the official websites of courts at all levels, judicial authorities, and authoritative media that have been publicly released. They are not related to the cases handled by our firm. They are provided solely for reference in understanding relevant adjudication rules and do not constitute opinions on specific cases.

[Case Number]The case number has not been made public.
[Trial Court]12348 Public Legal Services of the Provincial Department of Justice of Qinghai Province (case of off-exchange margin financing)
[Judicial Summary]Margin trading and short selling are financial businesses licensed by the state. Except for securities companies that have obtained the qualification to engage in margin trading and short selling in accordance with the law, any unit or individual that signs an off-exchange financing contract with the borrower shall be deemed invalid. Where the transaction is named as a loan but is actually an off-exchange financing, the financing party shall not request the payment of the agreed interest and returns, and the borrower shall not request the financing party to compensate for the investment losses; the court shall order the return of the principal and shall not support the agreed interest.
[Source]The 12348 Public Legal Service Network of the Justice Department of Qinghai Province (On the Circumstances of the Invalidity of Private Lending Contracts and Off-exchange Margin Trading) (2021-07)

[Case No.]The case number has not been made public.
[Trial Court]The case in Shijiazhuang City, Hebei Province (which is labeled as a private lending case but is actually an off-market配资 case)
[Judicial Summary]The contract named "private lending" is actually an "off-exchange margin financing" contract, which violates the mandatory provisions of the law and should be deemed invalid. The off-exchange margin financing entities use loan contracts or entrusted wealth management contracts, etc. to evade the restrictions imposed by financial regulatory authorities on the sources of funds, investment targets, and leverage ratios in the financing and repo business. The court legally deems the contract invalid and determines the legal liability according to the degree of fault of the parties involved.
[Source]Shijiazhuang Chang'an Network (Shijiazhuang Municipal Committee of Political and Legal Affairs: named as civil lending, but in fact it is off-market financing) (2024-08)

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

Disclaimer: This article is compiled based on the current effective laws and regulations and public 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. In case of disputes, please consult a practicing lawyer in time.