This analysis examines a landmark judicial decision in the private fund sector: a fraud case involving a 9 billion yuan scheme, where the custodian brokerage was found negligent and ordered to bear 10% supplementary liability. The ruling signals a definitive end to the era of custodians claiming absolute immunity from responsibility.

Previously, when private funds collapsed or managers committed fraud, all liability fell solely on the fund manager. Custodian brokerages and banks were seen merely as facilitators of fund transfers and account reconciliation, bearing no responsibility for verifying underlying assets or supervising risk control. This misconception led countless investors and institutions to relax their scrutiny of custodian capabilities and risk control clauses, believing that holding a licensed custodian guaranteed safety.

In April 2026, however, the Shanghai Financial Court issued a final appellate judgment in the massive 9 billion yuan fundraising fraud case involving Shanghai Hualing Asset Management. This ruling decisively broke the custodian's "immunity shield," redefining the boundaries of custodian duties and marking a milestone precedent in private fund compliance history.

Case Background

This case stands as the largest fundraising fraud in the private fund industry in recent years, impacting the highest number of victims and generating the most extensive social repercussions. Between 2016 and 2018, Shanghai Hualing Asset Management Co., Ltd. ("Hualing Asset"), operating as a licensed private fund manager, illegally established over thirty private fund products falsely marketed as backed by low-risk bank acceptance bills, publicly soliciting funds from investors. The official custodian for these products was Hengtai Securities, now renamed FIN STREET SEC.

Judicial investigations confirmed that Hualing Asset's actual controller, Sun Qi, and his core team fabricated all underlying assets. The more than 5,000 purported bank acceptance bills involved were all forged or altered documents, with numerous bills being repackaged and repeatedly used to raise funds. The manager used these fictitious underlying assets to construct a commingled fund pool, cumulatively raising over 9 billion yuan in illegal funds. None of the raised capital was invested in genuine financial assets; instead, it was diverted to service the Ponzi scheme, fund chaotic company operations, support the controller's personal extravagance, and facilitate related-party transfers.

Over 700 investors fell victim to this scheme. After accounting for minimal restitution from criminal proceedings, investors ultimately suffered actual principal losses exceeding 2 billion yuan. In November 2022, the Shanghai First Intermediate People's Court issued a final criminal judgment: Hualing Asset was convicted of fundraising fraud and fined 200 million yuan; actual controller Sun Qi received a life sentence with deprivation of political rights for life and confiscation of all personal property. All core individuals involved were held legally accountable.

Following the criminal verdict, most investors found their losses could not be fully recovered through asset recovery efforts. Consequently, they filed civil lawsuits against the custodian brokerage, arguing that the custodian's dereliction of duty warranted compensation for their losses. During the trial, Hengtai Securities defended itself by claiming its obligations were limited to formal fund transfers and account reconciliation, asserting it bore no responsibility for the authenticity of underlying assets and that the manager's criminal fraud was an extreme anomaly for which the custodian bore no liability.

Core Judgment Logic of the Shanghai Financial Court

On April 22, 2026, the Shanghai Financial Court issued its final judgment, rejecting the brokerage's appeal and upholding the finding of fault-based liability, thereby clarifying the legal boundaries of custodian responsibilities. The court's key rulings were unequivocal. First, the manager's fundraising fraud was the direct and primary cause of investor losses, with the manager and its core personnel bearing primary criminal and civil responsibility. Second, the custodian brokerage, as a licensed financial institution, is not merely a mechanical payment tool; it legally bears fiduciary duties including fund safekeeping, investment operation supervision, underlying asset verification, and risk prevention. Third, in this case, the custodian brokerage engaged in "custody without management and review without verification," failing to perform any substantive verification, supervision, or interception duties despite facing massive volumes of fraudulent bills, repeated abnormal transactions, and enormous fund flows lacking genuine underlying support. This constituted major fault in the performance of its duties. Fourth, considering the custodian's degree of fault, causal relationship to losses, and industry performance standards, the court determined the custodian should bear 10% supplementary liability for investors' actual principal losses.

In related individual cases, multiple investors received compensation at the 10% ratio: a 7.12 million yuan loss yielded 712,000 yuan in compensation, while a 1.53 million yuan loss yielded 153,000 yuan. The judgments demonstrate consistent standards and strong enforceability.

Legal Basis

The ruling is grounded in Articles 36 and 145 of the Securities Investment Fund Law of the People's Republic of China.

Industry-Disruptive Significance

This case definitively concludes the era of "custodian immunity" in the private fund industry, reshaping compliance rules across the sector and carrying disruptive implications for general partners, limited partners, and custodians alike.

For investors, this case establishes a new avenue for rights protection. When private fund products collapse, investors can now seek supplementary compensation from custodians who failed in their duties, in addition to pursuing claims against managers and recovery through criminal proceedings. This substantially strengthens the investor protection framework.

For private fund managers, the fund establishment phase now demands rigorous custodian selection. Managers must prioritize substantive risk control, underlying asset verification, and abnormal transaction interception clauses in custodian agreements, leveraging custodian compliance capabilities to mitigate operational risks. Focusing solely on management fees and profit distribution is no longer sufficient.

For custodian brokerages and banks, the era of perfunctory "formal custody" and mechanical fund transfers is over. Licensed custodians must return to their role as financial "gatekeepers," fulfilling substantive verification and supervision obligations. Failure to do so will result in dual consequences: civil compensation and regulatory penalties. The private fund industry now operates under a dual compliance accountability framework involving both managers and custodians, with industry compliance standards raised across the board.

This case analysis is based on publicly available information from financial media reports and court documents for educational purposes only and does not constitute legal advice. For specific legal matters, please consult a qualified financial attorney.