Finance Union News December 3rd (Reporter Lin Jian) The "30 billion Chengxing Fraud Case" has follow-up - there are new developments in the dispute between Xiangcai Securities and Yunnan Trust. On December 3rd, both Xiangcai Co.,Ltd and Xiangcai Securities announced that Xiangcai Securities recently received a civil judgment delivered by the Kunming Intermediate People's Court, which ruled on the two cases (Yun 01 Min Chu 414 and Yun 01 Min Chu 415) in the first instance.

According to the first-instance judgment, as Defendant 1, Zhongcheng Company needs to pay the repurchase price to Yunnan Trust within ten days after the judgment takes effect, which are 0.1492 billion yuan and 0.1937 billion yuan respectively, and pay the corresponding interest. At the same time, Xiangcai Securities, also as a defendant, bears 56% supplementary liability for the above debts of Zhongcheng Company. In addition, the court rejected other litigation requests from Yunnan Trust.

However, Xiangcai Co.,Ltd stated in the announcement that the subsidiary involved in the case is still in the appeal period of the first-instance judgment, and the judgment has not yet taken effect. The subsidiary disagrees with the aforementioned first-instance judgment and will appeal in accordance with the law to effectively protect the legitimate rights and interests of the company and investors.

Review of the Lawsuit

On September 5, 2023, Xiangcai Co.,Ltd issued an announcement regarding litigation matters. The subsidiary Xiangcai Securities received a total of 10 complaints delivered by the Intermediate People's Court in Nanjing, Jiangsu Province, involving a total amount of 1.678 billion yuan. The plaintiff is Yunnan Trust, suing Xiangcai Securities for the economic losses caused by the Chengxing fraud case, and the possible responsibilities that Xiangcai Securities, as a distribution agency, may bear.

Specifically, Yunnan Trust's Yunyong trust products and Xiangcai Securities' asset management products are both involved in the 30 billion fraud case related to the Chengxing control, with Xiangcai Securities losing over 0.9 billion yuan and Yunnan Trust losing over 1.5 billion yuan. The essence of the losses incurred by Yunnan Trust's Yunyong series trust products is that Chengxing Company deceived trust funds by fictitious supply chain trade with Suning.

From the results, Chengxing's actual controller, Luo Jing, was sentenced to life imprisonment for contract fraud.

From the announcement on September 5, 2023, to May 2024, the case has not yet been heard in court, so there have been no further developments. However, on May 14, 2024, yunnan reits took the initiative to apply for withdrawal of a lawsuit, withdrawing one of the cases out of 10 cases, involving an amount of 0.173 billion yuan, and was allowed by the Nanjing Intermediate People's Court of Jiangsu Province. Yunnan reits bore the cost of the case.

However, in June, one month later, yunnan reits chose to sue xiangcai co.,ltd for two cases (with symbols of 0.1492 billion and 0.1937 billion), but the lawsuit venue was changed from the Nanjing Intermediate People's Court of Jiangsu Province to the Kunming Intermediate People's Court of Yunnan Province.

Based on the evolution of the situation mentioned above, in the latest disclosed case, the plaintiff yunnan reits has named China Cheng Company and xiangcai co.,ltd as defendants. As the active manager of Yunyong products, yunnan reits filed a lawsuit on behalf of Yunyong products, demanding that China Cheng Company (the financier of Yunyong products) assume the obligation to return the transfer price, and requiring xiangcai co.,ltd (the distribution agency of Yunyong products) to assume joint liability for the debt. This case also became a lawsuit between managers and distribution agencies, a litigation among financial institutions.

It is worth mentioning that,In the aforementioned "1.678 billion" lawsuit, only the 2 cases withdrawn by yunnan reits were transferred to the Kunming Intermediate People's Court of Yunnan Province for trial, with the above-mentioned latest judgment. The other cases are still being heard in the Nanjing Intermediate People's Court of Jiangsu Province. Obviously, the plaintiff yunnan reits chose to file the lawsuits locally.

Journalists learned that during this series of processes, the operational situation of xiangcai co.,ltd was normal, and its financial condition was sound. The company has also stated multiple times that it will actively defend itself, assert its legitimate rights in accordance with the law, take relevant legal measures, effectively safeguard the legitimate rights and interests of the company and shareholders, and disclose information in a timely manner according to the progress.

As the distribution agency of the Yunyong series products, xiangcai co.,ltd is under scrutiny in the industry about whether it should bear the ultimate investment failure risk of the Yunyong products managed by yunnan reits.

Industry insiders interviewed believe that the establishment of the above viewpoint also requires xiangcai co.,ltd to provide sufficient evidence to prove that in the process of distributing Yunyong series products managed by yunnan reits, they have fulfilled the obligations of suitability management of sales agencies and have not violated relevant laws and regulations.

Xiangcai Securities' 2023 annual report disclosed the progress of the case, and based on the opinions of legal representatives and the judgment of the management, believes that there is no evidence in Yunnan Trust's evidence to prove that Xiangcai Securities has committed or implemented acts that infringe on Yunnan Trust's interests. In addition, in numerous civil cases, the court rulings have confirmed that Xiangcai Securities has no fault in the corresponding product sales.

Furthermore, there is no involvement of Xiangcai Securities personnel in the criminal behavior in the verdict of Luo Jing's criminal case. If Yunnan Trust does not provide further valid evidence of Xiangcai Securities' infringement, the possibility of the above-mentioned case holding Xiangcai Securities responsible is small.

Xiangcai Co., Ltd.: Subsidiary will file an appeal according to the law.

According to the announcement issued by Xiangcai Co., Ltd., two aspects of the actual situation of the subsidiary's involved case were explained:

Firstly, the company believes that according to the criminal judgments related to the trust products of the Luo Jing case issued by the Shanghai High People's Court and the Shanghai Second Intermediate People's Court, confirming that Yunnan Trust is the managing institution of the involved trust products, Xiangcai Securities is the distributing institution, and identifies Xiangcai Securities as one of the victimized institutions. Xiangcai Securities and related parties did not participate in contract fraud with Luo Jing and others. In addition, regarding the involved trust products as managed by Yunnan Trust, investors have previously filed lawsuits against Yunnan Trust, Xiangcai Securities, and other institutions. In the previous effective judgments, Xiangcai Securities has won all cases.

Secondly, the company mentioned that the relevant trial courts have all acknowledged that Xiangcai Securities has fulfilled the obligations of a distribution institution and did not support requests requiring Xiangcai Securities to assume joint liability or compensation. Xiangcai Securities believes that the facts determined in the first-instance judgment of the two cases in this lawsuit are unclear, the law is misapplied, and will file an appeal in accordance with the law to fully protect its legitimate rights and interests.

It is worth mentioning that compared to how the responsibilities of the distribution institution mentioned above are determined, Yunnan Trust's own responsibility has been clearly regulated by the regulators. In June 2023, the regulatory authorities had determined that Yunnan Trust had engaged in illegal activities in handling the 'Yunyong' project and imposed penalties. The main illegal activities include: incomplete business system construction, failure to achieve 'institutional priority', inadequate investigation and review of customers and basic transactions, lack of strict control over the entire process of fund disbursement and repayment, and failure to disclose information as required.

Currently, Xiangcai Securities will make provisions for liabilities based on the first-instance judgment, and the specific amount will be subject to the audit results of the annual auditor. This provision for liabilities is made in accordance with relevant accounting standards and based on the principle of prudence, and does not constitute a commitment to assume legal responsibility or relinquish related rights by the company.