Ten Years of Targeted Share Issuance, “Deeply Trapped” by 60%! A Private Equity Firm Sues a Listed Company; It Loses in the First Instance over Claims of 430 Million

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Caixin Media, April 7th — (Reporter Feng Qijuan) Private placements are not guaranteed investments; losses are common. A private equity firm experienced a deep loss over ten years of private placements, and after encountering a “black swan” of financial fraud, they angrily sued the listed company.

According to a recent announcement by Shangshi Development, as the defendant, the company has received the “Civil Judgment” delivered by the Shanghai Financial Court. The court has dismissed all claims from the plaintiff, Junzheng Partnership (Ningbo Meishan Bonded Port Area) Equity Investment Partnership (Limited Partnership) (hereinafter: Junzheng Partnership), in the first instance, and found that the causal relationship between the plaintiff’s investment decision and the alleged false statements involved in the case is not established, and the plaintiff has no right to claim compensation for investment losses. Additionally, the court also ordered Junzheng Partnership to bear the acceptance fee of 2.2001 million yuan.

The legal dispute between Shangshi Development and Junzheng Partnership traces back to a private placement project ten years ago.

In January 2016, Junzheng Partnership subscribed to 51.46 million shares of Shangshi Development at a price of 11.63 yuan per share, with a total investment of 599 million yuan, locking in for 36 months. By the lock-up expiration date on January 22, 2019, Shangshi Development’s closing price had fallen to 4.74 yuan, nearly a 60% drop from the issuance price.

However, the project funded by this round of private placement, Longchuang Energy Conservation (later renamed Shangshi Longchuang), was exposed in 2022 for systemic financial fraud spanning six years, directly leading to false records in Shangshi Development’s financial statements for six consecutive years. From April to June 2024, Shangshi Development and several senior executives, including the chairman of Shangshi Longchuang, were warned by the Shanghai Securities Regulatory Bureau and fined heavily, totaling 25.45 million yuan. In September of that year, former chairman Cao Wenlong and others of Shangshi Longchuang were sentenced.

Subsequently, Junzheng Partnership initially sued Shangshi Development and other defendants for contract disputes, accusing Shangshi Development of fraudulent issuance, claiming damages of about 801 million yuan. During the litigation, the claim was adjusted to a dispute over securities false statements, with damages revised to 431 million yuan, and a request for legal judgment on litigation costs and lawyer fees totaling 350k yuan.

Notably, a court document disclosed in March this year shows that two ordinary retail investors also sued Shangshi Development for securities false statements, both winning and receiving compensation. Why do different judgments arise under the same case type?

Six years of “fraud” exposure, regulatory heavy penalties enforced

Six years after the private placement, Shangshi Development received a regulatory work letter from the Shanghai Stock Exchange, requiring self-inspection of accounts receivable related to Shangshi Longchuang. Preliminary self-inspection showed that by the end of 2021, Shangshi Longchuang’s unreviewed accounts receivable totaled about 350k yuan, some of which involved financing trade, and there may be significant operational risks of uncollectibility. In April of the same year, the SSE issued another inquiry letter on information disclosure, requiring the company to disclose corrections in accounting, capital occupation, and non-standard internal control audit opinions.

Regulatory investigations found that from 2016 to 2021, Cao Molong, then chairman of Shangshi Longchuang, fabricated contracts, inflated business progress, engaged in circular trade, and participated in military-civil fusion trade, artificially inflating revenue by 2.62B yuan and total profit by 614 million yuan, leading to false records in Shangshi Development’s financial statements during the same period.

This fraud caused Shangshi Development’s 2017 annual report to understate goodwill impairment by 220 million yuan, accounting for 18.31% of total disclosed profit; and its 2021 annual report to understate bad debt provisions by 809 million yuan, accounting for 52.36% of total profit.

In April 2024, the Shanghai Securities Regulatory Bureau issued warnings and fined a total of 8.5 million yuan for failure to disclose expected operating losses timely, failure to disclose important contracts promptly, and false records in annual reports from 2016 to 2021. The then-chairman Zeng Mou, CFO Yuan Mouhang, CEO Xu Moubing, CEO Tang Mou, Vice Presidents Wang Moujun and Guo Mumin were all warned and fined 4 million, 3 million, 2.1 million, 2.1 million, 1 million, and 750k yuan respectively.

In June of the same year, Cao Molong, then chairman of Shangshi Longchuang, was warned and fined 4 million yuan by the Shanghai Securities Regulatory Bureau, and banned from securities market for 10 years. Three months later, the Shanghai Second Intermediate People’s Court issued a criminal judgment, sentencing Cao Wenlong and others in the first instance. In December 2025, the Shanghai Higher People’s Court issued a second-instance verdict on Cao Wenlong.

Why do the same case have different judgments?

Regarding Junzheng Partnership’s claims, Shangshi Development explicitly disagreed and raised six core points in its defense: 1. Clarify that as a professional investor, the plaintiff’s investment decision should not be deemed dependent on the involved information; 2. Emphasize that this case involves “off-market” “non-public issuance” participation by professional investors, which should be reviewed under general tort law requirements; 3. Argue that the valuation agency’s income approach and the target company’s profit forecasts are predictive information and do not constitute false statements under law; 4. Point out that the two disclosure contents claimed by the plaintiff are not material; 5. Further argue that the plaintiff’s contractual actions occurred before the relevant disclosures, and there is no causal link; 6. Reiterate that the subscription price was not influenced by the relevant disclosures.

In fact, the adjustment of the case to a securities false statement liability dispute by Junzheng Partnership is based on real precedent.

On March 16 this year, the Shanghai Financial Court publicly announced the first-instance judgments in two securities false statement liability disputes. Investors Dong Mou and Sheng Mou sued Shangshi Development and senior executives Zeng Mou and Tang Mou, both winning their cases. The court found that these two investors bought stocks during the period from the false statement implementation to the disclosure date, and suffered losses after selling or holding, with a causal relationship between the losses and the false statements.

The final judgments required Shangshi Development to pay Sheng Mou a total of 158.1k yuan, including 157.9k yuan for investment difference losses, 47.37 yuan for commission losses, and 157.89 yuan for stamp duty; and to pay Dong Mou a total of 36.9k yuan, including 36.8k yuan for investment difference losses, 11.05 yuan for commission losses, and 36.83 yuan for stamp duty. Several senior executives were also ordered to bear joint liability proportionally.

This sharply contrasts with Junzheng Partnership’s loss. Retail investors’ stock purchases in the secondary market are protected by law presumptions; whereas Junzheng, as a professional institution, engaged in private placement subscription and long-term holding before the fraud was exposed. The fundamental difference in investment mode and timing of transactions led courts to make completely opposite “causality” rulings.

In fact, this is not the first confrontation between Shangshi Development and Junzheng Partnership. As early as May 2024, Junzheng Partnership submitted a temporary proposal to Shangshi Development, criticizing the company’s dividend level as significantly below market average, and suggesting to increase the 2023 annual cash dividend per share to 0.15 yuan, far exceeding the original plan of 0.021 yuan. However, at the subsequent shareholders’ meeting, the proposal was rejected with over 91% opposition votes.

According to the China Securities Investment Fund Association, Junzheng Partnership is a private equity fund managed by Junzheng Capital. This private equity firm was established in May 2014, registered in February 2015 with a registered capital of 50 million yuan, with a paid-in ratio of only 10%. Its managed scale ranges from 0 to 4.72B yuan, with the latest update on institutional information in July 2025.

Tianyancha shows that Junzheng Capital is currently held by Shanghai Junzheng Investment, Guotai Junan Investment, and Shanghai Junzheng Investment Management (Limited Partnership), holding 55%, 25%, and 20% respectively.

The legal representative, chairman, and general manager of Junzheng Capital, He Bin, previously worked for Guotai Junan for many years. In December 1999, He Bin joined Guotai Junan, serving in senior roles in M&A, capital operations, listing, and HR departments. In December 2006, he became Assistant President of Guotai Junan Securities; from October 2008, he served as President and Chairman of Guotai Junan Venture Capital; in May 2014, he took charge of Junzheng Capital, and in October 2016, he became the legal representative and executive director of the private equity firm Junzheng Asset Management.

Private placement “big names” all suffered losses, those who held on face a 60% paper loss

In January 2016, Shangshi Development raised 750k yuan through private placement. Besides Junzheng Partnership, other subscribers included Shangtou Assets, Shangyin Fund, CITIC Securities, Great Wall Asset, Zhongrong Dingxin, and Cao Wenlong, with investments of 1 billion, 673 million, 525 million, 449 million, 422 million, and 234 million yuan respectively, acquiring 85.98 million, 57.90 million, 51.46 million, 45.16 million, 38.60 million, 36.28 million, and 20.12 million shares.

Compared to the top ten shareholders at the end of 2015, all seven new investors entered the top ten after the private placement issuance.

Data shows that from Q1 2016 to Q1 2019, these seven shareholders remained among Shangshi Development’s top ten shareholders. By Q2 2019, Shangyin Fund and Cao Wenlong had exited the top ten; in Q1 and Q3 2020, CITIC Securities and Zhongrong Dingxin also exited; by Q4 2025, Shangyin Fund had also dropped out of the top ten.

Looking back, Shangshi Development’s stock price in Q2 2019 averaged 10.06 yuan, with a peak of 12.57 yuan; in Q1 and Q3 2020, and Q4 2025, the average prices were 5.56, 5.94, and 6.47 yuan respectively. The investors who exited thus suffered losses to varying degrees.

As of the end of 2025, Shangtou Assets, Junzheng Partnership, and Great Wall Asset still rank among the top ten shareholders, holding 111.7799 million, 66.9084 million, and 31.7705 million shares respectively.

Using the latest closing price of 4.69 yuan, the market value of their holdings is approximately 524 million yuan, 314 million yuan, and 149 million yuan. Without considering dividends, these are nearly 60% below their initial investments, with losses of 476 million, 285 million, and 300 million yuan respectively.