Sheng Yuan Environmental Protection reported an 81.54% loss on a 6000万 private fund investment in just nine months, exceeding 10% of its annual audited profit. The company alleges fund manager misconduct, including unauthorized trades and falsified NAV reports, and accuses custodian China Merchants Securities of failing to supervise. China Merchants Securities denies liability, emphasizing it fulfilled its duties and that the boundaries of private fund custodian responsibility are legally defined, not infinite. This dispute reignites industry debate on custodian liability, referencing recent cases like Fu Anna and the Hangzhou private fund runaway incident, with implications for regulatory frameworks. Investors and listed companies must reassess risk management for corporate treasury investments, focusing on due diligence and understanding custodian role limitations.
When Private Funds Blow Up: The Intense Battle Over Custodian Responsibility in China’s Equity Markets
