Tianfeng Securities Faces Heavy Penalty, Two Former Senior Executives Bermaned for Life

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After more than three months of investigation by the China Securities Regulatory Commission, the illegal financing issues of Tianfeng Securities (Rights Protection) (601162.SH) have finally been clarified.

On the evening of March 13, Tianfeng Securities issued a notice stating that the company received the “Administrative Penalty Decision” from the China Securities Regulatory Commission’s Fujian and Hubei bureaus. The company was fined 4 million yuan for failing to disclose shareholding information in a timely manner, and 15 million yuan for illegal financing and information disclosure violations, totaling 19 million yuan in fines. At the same time, five former senior executives of the company were fined a total of 22.7 million yuan, including former Chairman Yu Lei and former Vice President and CFO Xu Xin, who were both banned from securities markets for life.

In addition to penalties, there were setbacks in business operations. The Hubei Securities Regulatory Bureau suspended Tianfeng Securities from engaging in agency sales of private equity financial products for two years, and its private equity investment fund subsidiary, Tianfeng Tianrui Investment Co., Ltd., was suspended from establishing new private equity funds for one year.

The implementation of these penalties marks the conclusion of a regulatory investigation that lasted over three months, and clearly exposes the long-standing compliance failures of this provincial-level securities firm in Hubei Province. Behind the penalties is a detailed pattern of this state-owned provincial securities firm repeatedly crossing compliance red lines and leveraging its resources to illegally “inject blood” into its former largest shareholder, Contemporary Group.

Illegal financing to shareholders amounts to up to 9.3 billion yuan

Among recent cases of related-party financing involving securities firms, Tianfeng Securities not only involved a large scale of funds but also employed highly complex financial instruments.

It was found that from 2020 to 2022, Tianfeng Securities used its own funds through subsidiaries’ fund transfers, designated investment rescue projects, private fund products purchasing bonds issued by Contemporary Group or its affiliates, and proprietary reverse repurchase operations, providing a total of 5.502 billion yuan in financing to Contemporary Group. Currently, Tianfeng Securities has recovered 5.253 billion yuan, with remaining 249 million yuan claimed through bankruptcy administrators or courts.

Meanwhile, Tianfeng Securities used managed client assets to subscribe to collective trust plans, providing 1.012 billion yuan in financing; purchased bonds of the Contemporary Group in the primary market, providing 492 million yuan; and engaged in reverse repurchase of bonds with two private funds, providing 1.52 billion yuan.

Additionally, in 2021, Tianfeng Securities participated in the capital increase of Guanggu Financial Leasing, transferring 500 million yuan to related parties of Wuhan Commerce under the name of equity earnest money; in the same year, Tianfeng Securities and its subsidiary, Tianrui Property, provided 300 million yuan in financing to a related company designated by Xue of Wenfeng Shares. The above 500 million yuan in equity earnest money and 300 million yuan in financing have been recovered.

In total, Tianfeng Securities illegally provided approximately 9.326 billion yuan in financing to shareholders through trust, private equity, bond investments, and equity capital increases.

Beyond related-party financing, Tianfeng Securities was also involved in a delayed illegal information disclosure case. On December 31, 2021, the Quanzhou Intermediate People’s Court of Fujian Province issued an “Enforcement Ruling,” ordering Su Mouxu and Fujian Nan’an Xiongguan Investment Center (Limited Partnership), collectively holding 41.372 million shares of Yongan Forestry (000663.SZ) and dividends, to be delivered to Tianfeng Securities to settle related debts, with the note that “the above property rights transfer from the date of service of this ruling.” On the same day, Tianfeng Securities, as the applicant, received the ruling, which resulted in its holding of Yongan Forestry shares reaching 12.29% of the total share capital, crossing the disclosure threshold for equity changes. However, Tianfeng Securities only issued “Notification Letter” and “Simplified Equity Change Report” to Yongan Forestry on February 23 and March 7, 2022, respectively, and Yongan Forestry only published relevant disclosures on February 24 and March 9, 2022.

In terms of penalties, Tianfeng Securities was fined 5 million yuan for illegal financing to shareholders or related parties, 10 million yuan for illegal information disclosure, and 4 million yuan for illegal disclosure of Yongan Forestry shareholding changes, totaling 19 million yuan.

Five senior executives fined 22.7 million yuan

In addition to corporate penalties, regulatory actions against former senior executives of Tianfeng Securities serve as a stark warning about compliance culture in the capital market.

According to investigation results, then-Chairman Yu Lei, then-CEO Wang Linjing, then-Executive Vice President Feng Lin, Vice President Zhai Chenxi, and Vice President and CFO Xu Xin were all aware of, involved in, or directly executed the violations. However, in the annual reports from 2020 to 2022, Tianfeng Securities deliberately concealed related-party transactions and failed to disclose them as required, resulting in significant omissions.

Regarding specific penalties, Yu Lei and Xu Xin were fined 6 million yuan each and both received lifetime securities market bans; Wang Linjing was fined a total of 4.4 million yuan; Zhai Chenxi was fined 3.3 million yuan; Feng Lin was fined 3 million yuan. The total penalty for the five former senior executives amounts to 22.7 million yuan.

The two former executives who received lifetime bans each have clear career trajectories, and their outcomes are quite poignant.

Public information shows that Yu Lei, born in 1978, holds a Ph.D. in Law from Wuhan University. He previously served as the Secretary of the Board of Renowned Pharmaceutical (600079.SH), a company under the “Contemporary Group,” and was reported as the “youngest secretary” at age 25. In November 2006, at only 28 years old, Yu Lei became Chairman of Tianfeng Securities, leading the firm for nearly 20 years and becoming a key figure in the “Contemporary Group” and Hubei’s capital market ecosystem. Now, he will leave the securities industry entirely due to the lifetime ban.

Similarly, Xu Xin, born in 1975, previously served as Investment Director and Secretary of the Board at Huarong Securities. She joined Tianfeng Securities in 2015 as Vice President and CFO. As a key node in the illegal information disclosure chain, the CFO’s role is crucial; in the context of related-party financing, the financial department’s deep involvement is unavoidable. The regulatory agency’s maximum penalty against Xu Xin reflects her significant participation in the violations. The differentiated penalties for the five executives also clearly delineate the responsibilities between “aware participation” and “leading role.”

The Dilemma of Provincial Securities Firms’ Dual Identity

Tianfeng Securities traces its origins to the Chengdu United Futures Exchange established in 1995. In 2000, it was reorganized and renamed Sichuan Tianfeng Securities Brokerage Co., Ltd., with a registered capital of 77 million yuan. In 2008, then-Chairman Yu Lei led the introduction of Wuhan State-owned Assets Operation Co., Ltd., becoming the largest shareholder, and the company’s registered location moved from Chengdu to Wuhan. At that time, Yu Lei set a clear development direction for Tianfeng Securities—to build a “national comprehensive securities firm”—and completed a full licensing layout within four years.

Subsequently, Yu Lei led Tianfeng Securities on an “acquisition and expansion” path: in 2014, acquiring 29.99% of Heng Tai Securities; in 2015, investing in Lianxun Securities; and in 2016, participating in Huaxin Securities’ capital increase. In 2018, Tianfeng Securities was listed on the Shanghai Stock Exchange main board, becoming Hubei’s first IPO-listed securities firm, with net capital rising from 294 million yuan to nearly 10 billion yuan.

The compliance failures of Tianfeng Securities reflect the long-standing structural dilemma of a provincial securities firm caught in capital manipulation. As the only provincial securities company in Hubei, Tianfeng Securities has always been tasked with serving the local economy and supporting the regional capital market. While this positioning is reasonable, when provincial resource advantages intertwine deeply with the needs of large local private enterprises, and boundary management fails to keep pace, compliance risks quietly accumulate.

Between 2015 and 2017, before Tianfeng Securities’ IPO application was accepted by the CSRC, the founder of the largest private group in Hubei, Ai Luming, who was well-versed in capital operations, gradually injected Tianfeng Securities’ equity into multiple companies under the “Contemporary Group,” forming a tightly linked shareholding network—Yong’an Forestry (000663.SZ) held 11.22%, Contemporary Group itself held 3.18%, Shanghai Tianhe held 2.18%, and Santech Cable (002159.SZ) held 0.55%. In 2016, another listed company under the “Contemporary Group,” Contemporary Cultural and Sports (600136.SH), also appeared as a shareholder of Tianfeng Securities with a 1.05% stake. When combined, by the end of 2017, the “Contemporary Group” controlled over 17% of Tianfeng Securities’ shares, ranking second among shareholders after the four state-owned shareholders holding 30.89%. Dispersing shareholding across multiple subsidiaries is consistent with Ai Luming’s capital operation logic and results in the “Contemporary Group” exerting a much deeper control over Tianfeng Securities than any single shareholding percentage suggests.

In 2022, the “Contemporary Group,” with assets exceeding 100 billion yuan, suddenly “broke down,” with bonds defaulting one after another and assets being liquidated. By September 2024, the group filed for bankruptcy reorganization due to insolvency. As the “Contemporary Group” collapsed, the hidden details of Tianfeng Securities’ illegal “blood transfusion” to shareholders finally surfaced.

This regulatory heavy penalty may mark a pivotal moment for Tianfeng Securities to heal and rebuild its compliance bottom line—yet, the heavy price of this overdue reckoning has already been paid.

(Source: China Business Journal)