An astonishing incident has emerged in China, where 1.252 billion yuan from Show Investment, held by Chang’an Bank, has mysteriously disappeared. The legal representatives, custodian securities firms, and holders of the investment claim to have no knowledge of the missing funds.
According to a report from Economic Daily News on August 15th, Liu Qiang, a senior executive of Show Investment (Show Enterprise Management Group Limited), revealed to the media, “The money from the private equity fund invested by our clients, which was kept in the bank, has vanished! This fund is a low-risk (R2) cash management fund.”
Starting from February 19, 2019, investors began purchasing the Sunshine Private Equity Fund products of Youce Investment (Zhejiang Youce Investment Management Co., Ltd.), including “Youce Monthly Income,” “Youce Long Real,” and “Youce Long Show.”
From April 2019 to May 2023, Youce Investment and Chang’an Bank signed a “Agreement Deposit Contract,” depositing the fundraising of the three products – “Youce Long Real,” “Youce Long Show,” and “Youce Monthly Income No. 3” – into the private equity fund accounts of Chang’an Bank Baoji Jinling Branch and Chang’an Bank Baoji Technology Branch.
It was agreed that Youce Investment would deposit funds into the account in batches based on the fundraising situation, and Chang’an Bank would provide a “Account Balance Statement” to Youce Investment on the monthly interest payment date. The bank’s agreement deposits for the aforementioned three products were included in the periodic reports of commercial bank wealth management product investments.
The 2023 annual reports of the three products, “Youce Long Real,” “Youce Long Show,” and “Youce Monthly Income No. 3,” disclosed that the total amount of the bank’s agreement deposits reached 1.252 billion yuan.
However, on July 3 of this year, investors discovered that the “Account Balance Statement” was not published as scheduled. The bank’s account flow certificate showed that only 86,000 yuan remained in the agreement deposit.
A signed agreement deposit contract with the seal of Youce Investment provided by Liu Qiang stated that the “Youce Long Real” fund could not be transferred to other accounts and did not have online banking access.
The bank’s account flow certificate showed that from March 2019 to June 21, 2024, a total of 61.6 billion yuan was transferred from the fund investment account to the deposit account, and 51.67 billion yuan was transferred from the deposit account to the fund investment account, leaving a difference of 9.93 billion yuan.
In addition to transferring funds to the fund investment account, the three deposit accounts also transferred money to three external companies: Baoji Fengling Equity Investment Management Co., Ltd., Xi’an Changrong Investment Management Co., Ltd., and Baoji Yuanda Asset Management Co., Ltd.
On July 10, Youce Investment released a public announcement on significant fund operational matters, suspending the subscription and redemption business of the above-mentioned funds and stating that they would coordinate with the public security organs and the head office of Chang’an Bank. Subsequently, Youce Investment’s lawyer sent a lawyer’s letter to Chang’an Bank, citing the total deposit amount as 1.32 billion yuan.
The lawyer’s letter from Youce Investment mentioned that the above-mentioned private special accounts violated regulations by opening online banking, resulting in the transfer of funds from the exclusive agreement deposit account of the fund.
In response, personnel from Chang’an Bank’s Baoji Branch stated, “The opening of online banking is all applied by the company. At that time, the company signed a supplementary agreement with the bank to apply for the opening of online banking, and we carried out the execution according to the company’s requirements.”
Chang’an Bank’s head office stated that Youce Investment opened a deposit settlement account at Chang’an Bank, and customers’ deposits and withdrawals are free, as Chang’an Bank does not have the qualifications of a fund custodian, so there is no monitoring function. Later, Youce Investment applied to open enterprise online banking, “so you can operate directly on your mobile phone.”
A securities professional from Cinda Securities stated, “Funds cannot be opened for online banking, all of which are clearly stipulated in the agreement. However, these terms have not been effectively enforced.”
A professional engaged in related business at a major Chinese state-owned bank told Economic Daily News, “The master agreement clearly stipulates that funds cannot be transferred, in order to regulate the use of the 1.3 billion yuan. In actual sense, it categorizes the account as a ‘fund supervision type’ account. Therefore, the bank’s transfer of funds contradicts the principle of the exclusive use of the account’s funds, violating the original intent of the signed agreement.”
Supplementary agreements clarify unclear aspects of the master agreement. If a supplementary agreement deviates from the contents of the master agreement or even contradicts it, it is unnecessary.
The professional believes that as long as the contract stipulates that the account cannot be transferred at will, the bank cannot escape corresponding responsibilities, even if a check is presented, a transfer cannot be made.
The news of this huge sum disappearing has sparked public attention. Some netizens believe it is not just a loss of deposit, but can be called a scam, a “money grab.” Others suspect collusion between the fund and the bank to transfer the money. Some express sympathy for the investors who have lost money and believe that it is highly unlikely that the funds will be recovered.
A netizen from Jinhua, Zhejiang, under the username “I Want to Change My Name Like This,” stated, “The bank is changing the concept. It is not a fund custodial account, but a deposit special account! It is not even a normal settlement account. The agreement is signed by the three parties (Youce, bank, custodian), why wasn’t the custodian informed when the supplementary agreement was opened?”