Zhongtai Securities Employee Lost 92.06 Million Yuan in Unauthorized Trading Over 7 Years, Regulator Fines

September 19 (Caixin) — Reporter Gao Yanyun — On September 18, securities regulators in Zhejiang and Hunan provinces issued a series of penalties targeting two common industry problems: internal control failures at brokerage branches and professional misconduct by practitioners.

Zhejiang Regulator Issues Four Penalties

The Zhejiang Securities Regulatory Bureau issued four fines on the same day:

• Huayuan Securities (Wenzhou Jinxiu Road Securities Business Department) was ordered to increase the frequency of internal compliance inspections. The branch head, Liu Jingfeng, was ordered to take corrective measures.
• China Galaxy Securities (Taizhou Yinzhu North Street Securities Business Department) and its branch head, Wu Tao, were ordered to take corrective measures.
• China Galaxy Securities Zhejiang Branch received a warning letter.

Huayuan Securities: Misleading Statements in Private Fund Sales

An investigation found that Huayuan Securities' Wenzhou Jinxiu Road branch had the following issues:

1. Inadequate investor suitability management
2. Failure to effectively supervise employees providing securities investment advisory services
3. Some employees made misleading statements when selling private equity fund products

These issues indicate insufficient internal control and compliance management, weak oversight of employee conduct, and failure to effectively prevent and control risks.

The Zhejiang regulator ordered the branch to:

• Increase internal compliance checks and submit compliance reports
• Complete rectification within three months of receiving the order
• Conduct internal compliance checks every three months from October 2026 to September 2027
• Continuously improve compliance management systems and internal controls
• Submit compliance reports within five working days after each check

Liu Jingfeng, as branch head, was held responsible and ordered to take corrective measures, with the penalty recorded in the securities and futures market integrity archive.

China Galaxy Securities: Triple Penalty for Branch, Head, and Regional Office

The China Galaxy Securities Taizhou branch was found to have:

1. Missing records in the promotion of securities investment advisory services
2. Weak compliance awareness among some employees, including refusal to cooperate with on-site inspections

These issues reflect inadequate compliance management. Wu Tao, as branch head, was held responsible.

The Zhejiang regulator imposed corrective administrative measures on both the branch and Wu Tao, recorded in the market integrity archive. The branch was required to learn from the incident, strengthen compliance and risk management, enhance personnel management, and improve internal controls. Wu Tao was instructed to study laws and regulations seriously and improve compliance awareness and management capabilities.

Notably, the regulator did not stop at the branch level but extended penalties upward to China Galaxy Securities Zhejiang Branch, which received a warning letter for inadequate compliance management and weak compliance awareness regarding its subordinate branches. The Zhejiang branch was required to take effective corrective actions, hold relevant personnel accountable, and strengthen institutional management and employee compliance awareness.

This "penetrating accountability" approach reflects a regulatory shift from targeting individual branches to holding regional management headquarters responsible for overall oversight.

Hunan Regulator: Employee Conducts Unauthorized Trading, Losses Reach 92 Million Yuan

The Hunan Securities Regulatory Bureau issued penalties related to "discretionary trading" and "full authorization" by securities practitioners.

Case Details: Yang Wenming

During the investigation period, Yang Wenming was an employee of Zhongtai Securities. Between October 10, 2017, and January 4, 2024, Yang accepted authorization from a client named Tan to trade via instructions in a general account, executing cumulative transactions of 191 million yuan with a book loss of 1.8292 million yuan.

Between November 10, 2017, and March 6, 2024, Yang also operated a margin (credit) securities account for the same client, executing cumulative transactions of 2.338 billion yuan, resulting in an actual loss of 90.2331 million yuan.

In total, the two accounts saw 2.53 billion yuan in transactions and a combined book loss of 92.0622 million yuan. Yang received no illegal income during the period.

The case spanned seven years, involved leveraged margin trading, and included multiple transfers of account control. This exposed deep-seated weaknesses in brokerages' core risk controls, including:

• Abnormal monitoring of trading terminal information (e.g., IP/MAC addresses)
• Grid-based management of employee conduct
• Dynamic review of client account permissions

Note on Identity

On February 3, 2024, the Hunan regulator issued a penalty against Zhongtai Securities Hunan Branch and its then-head, also named Yang Wenming, for providing investment advice conflicting with private fund custody interests, directly recommending non-Zhongtai issued or distributed private products, receiving commissions for introducing clients or relatives, disclosing non-public information about custody products, and failures in WeChat group management, mobile phone registration, and fixed asset management.

While there is currently no evidence that the two Yang Wenmings are the same person, the identical name and shared affiliation with Zhongtai Securities have raised market concerns about personnel compliance and historical issue continuity. Further verification is needed.

Regulatory Trend: High Frequency, Strong Penetration, Focus on Individuals

Recent penalties against brokerages show a pattern of high frequency, strong penetration, and emphasis on individual accountability. The regulatory focus is shifting from case-by-case correction to systemic governance.

Key observations:

• Penalties now extend from frontline employees to branch heads, regional offices, and even headquarters management, reflecting a "one case, multiple investigations, joint responsibility" enforcement logic
• Common violations remain concentrated in longstanding issues: weak suitability management, persistent unauthorized client trading, and ineffective compliance record-keeping
• These patterns suggest that compliance construction at some brokerage branches remains at the level of written policies, without being truly embedded in business processes or performance evaluation systems

(Source: Caixin)