Recently, the judgment of a financial advisor from the Datang Wealth branch of a certain plant-based financial management company has attracted widespread attention in the industry. This is the first criminal conviction of a financial advisor executive following the collapse of a certain plant-based system, which not only unveils the illegal nature of high-yield "fixed income products" but also hides the "criminal red line" that all financial practitioners should be wary of.

Today, we will not discuss financial products but will dissect the court's logic of conviction: which sales behaviors of financial company personnel can shift from "performance" to "criminal evidence," and also provide a reminder for investors.

The court found that the certain plant-based enterprise group established four third-party wealth management companies since 2011, with Datang Wealth being one of them. Starting in 2017, the certain plant-based system, through its actual controlling enterprises as issuers, set up product managers without the approval of national financial regulatory authorities, and issued various directional financing wealth management products through local credit asset registration and filing centers.

The general manager of Datang Wealth's Shanghai First Branch, Yu, from August 2018 to July 2023, promoted the team to sell non-standard directional financing wealth management products to 359 unspecified members of the public, using a bait of 7%-9.5% annualized returns through telephone sales and promotional meetings, raising over 2.07 billion yuan in total. By the time the case occurred, 142 investors still had over 350 million yuan in principal that had not been repaid.

Yu's post-tax income from fixed income was 1.398 million yuan, including a post-tax salary of 750,000 yuan and post-tax dividends of about 650,000 yuan. After the case, Yu returned over 750,000 yuan of illegal income, and during the trial, Yu's family returned over 80,000 yuan of illegal income, totaling about 840,000 yuan returned.

The court believed that based on Yu's criminal circumstances and social harm, probation was not appropriate, ultimately sentencing him to 3 years and 5 months in prison for the crime of illegally absorbing public deposits, imposing a fine of 200,000 yuan, and the returned illegal income of over 840,000 yuan would be proportionally refunded to the fundraising participants, with the unreimbursed portion still needing to be pursued.

1. How Sales Behavior Slips from "Compliance" to "Crime"

The case exposes issues such as the illegal sale of fixed income products and high-yield inducements, which are typical characteristics of current illegal fundraising cases. In judicial practice, when courts qualify financial products, they mainly examine the following key dimensions:

(1) The "Illegality" of Fixed Income Products

In nature, fixed income products inherently carry a high risk of collapse. Compared to standardized securities that are listed and issued on stock exchanges, which have strict approval processes and transparent regulatory systems, the filing institutions for fixed income products are often financial exchanges or so-called "pseudo-financial exchanges," which fail to provide actual regulatory functions, have low review standards, insufficient information disclosure, and difficulty in verifying the authenticity of underlying assets, resulting in higher product risks.

These "fixed income" products are similar to the previously problematic P2P lending, involving issues such as fund pooling, mismatched durations, unclear underlying assets, and lack of regulation, which are not comparable to legitimate financial asset management products.

The flow of funds is an important factor in identifying whether fixed income products are illegal. Legitimate fixed income products must have funds genuinely invested in the agreed projects or used to repay normal corporate debts.

However, multiple subscription agreements for certain plant-based fixed income products show that the financing party, trustee, and credit enhancement party all have controllers that penetrate back to the certain plant group. In other words, all links in the issuance of products by the certain plant international are played by "insiders," and the raised funds ultimately flow to the certain plant group, suspected of self-financing. Therefore, the court determined that such fixed income products constitute illegal fundraising.

(2) The "Publicity" of the Fundraising Method and the "Social" Nature of the Fundraising Target

Publicly promoting and raising funds from unspecified individuals who may come into contact through telephone, internet, public lectures, etc., is an important feature that distinguishes illegal public deposit absorption from general private lending, reflecting its disruption of the national financial order. Sharing product information in WeChat groups or friend circles is one of the most common and dangerous behaviors currently recognized as "publicly promoting to society."

(3) The "Inducement" of Return Promises

Legal wealth management sales should clearly inform investors that "investment carries risks, and the principal may be lost," without promising capital preservation or guaranteed returns. Returns are variable and linked to the actual performance of the investment targets.

However, illegal absorption behaviors often manifest as clear inducements, directly or indirectly promising to repay principal and interest or provide returns in monetary, physical, or equity forms within a certain period. For example, "annualized 8% rigid repayment," "this project has a group company buyback guarantee, absolutely safe," are typical phrases. In this case, Yu promised an annualized return of 7%-9.5% through a supplementary letter, which had already crossed the red line of inducement.

2. Related Sales Personnel Cannot Escape Responsibility

In individual crimes of illegal fundraising, the subjective intent of financial advisors and other personnel is relatively easy to determine. If they have a clear intent to illegally possess, such as using the absorbed funds for personal extravagance or repaying personal debts, they may also involve more serious charges such as fundraising fraud.

In this case, the court found that the defendant Yu, as a directly responsible person from Datang Wealth, violated financial management laws by illegally absorbing deposits from the public, disrupting financial order, and the amount was particularly large, constituting the crime of (unit) illegally absorbing public deposits. Yu, as a financial advisor from Datang Wealth, was punished due to the unit's crime.

For unit crimes of illegal fundraising, whether financial advisors and other personnel should be punished as other directly responsible persons needs to examine whether they possess subjective knowledge and intent, that is, their level of awareness of the unit's illegal public deposit absorption behavior.

Commonly examined aspects in practice include:

① Whether they are aware that the company's business exceeds its operational scope;

② Whether they are aware that the unit is conducting public promotions;

③ Whether they are aware that the company has made return promises to investors;

④ Whether they are aware that the company does not limit investment participants;

⑤ Whether they are aware that funds are being pooled by the company.

3. Factors Influencing Sentencing in Illegal Absorption Cases

First is the status in the crime. In this case, Yu was identified as an accomplice, which had a certain impact on his sentencing. Therefore, during the litigation process, financial advisors and other related personnel should actively clarify their responsibilities and authority to assess whether they can be recognized as accomplices, and actively retain relevant evidence, especially the entire process of approval they participated in, approval documents, meeting minutes, phone recordings, etc., which are important evidence to determine roles and positions in joint crimes.

Second is the circumstances of admitting guilt and returning stolen goods. In illegal absorption cases, returning stolen goods is a very important aspect, and a good attitude of admitting guilt and remorse will directly affect the final judgment of the case.

For illegal absorption employees, whether executives, middle management, or grassroots employees, all income during their tenure is considered illegal income. The salary structure for non-business department employees consists of fixed salary plus bonuses; for business department employees, income generally includes base salary, commissions, bonuses, etc.; executive income also includes dividends. If one wants to seek probation, it is generally necessary to make a return, but there is no unified standard across the country for how much needs to be returned, whether all, most, or a multiple.

The financial industry is ultimately a special industry that places a high emphasis on safety and steady growth. This case and a series of previous cases have clearly established that the illegal issuance of fixed income products, public promotional fundraising methods, and promises of capital preservation and interest are high-risk behaviors that touch the legal red line. Financial personnel who participate in them will ultimately find it difficult to escape accountability.

For investors, when choosing wealth management products, it is essential to be vigilant, stay away from products without formal regulatory approval and unclear underlying assets, and remember the basic principle that "investment carries risks, and market entry requires caution," rejecting the temptations of "rigid repayment" and "high-interest capital preservation." Only by adhering to the legal and compliant investment bottom line can one avoid the painful consequences of principal loss and achieve wealth accumulation steadily.

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Original Article: “The First Criminal Judgment of a Certain Plant-Based System is Out! Heavy Sentencing Despite Partial Refund?”

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