Markets

Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and Mergermarket.

Remember the dotcom bubble? Some people will never forget how their entire life savings were wiped out investing in the wrong hot stock. Some U.S. banks still recall the hundreds of millions in settlements they paid. Only a fraction of that found its way back to those poor investors directly, however. In China, things are different.

There, investors who lost money because of banks' questionable behavior are getting repaid by the aiders and abettors themselves. Industrial Securities Co., which arranged the 2014 initial public offering of Dandong Xintai Electric, said in June it plans to start a kitty with 550 million yuan ($83 million) of its own funds to reimburse investors who lost money, now that Xintai Electric is on the verge of being delisted from Shenzhen's ChiNext board for fraud.

Crazy Coaster
The stock of power transmission equipment maker Dandong Xintai has taken investors on a wild ride, and the brokerage behind the IPO has said it will foot the bill for shareholder losses
Source: Bloomberg

Those who bought Xintai Electric shares after the IPO prospectus was published, but before the fraud was exposed, will qualify, Industrial Securities said. In a separate June filing, the Fuzhou-based brokerage said it was being investigated by the CSRC for a suspected failure to perform its statutory duties.

Popped
Social media site theglobe.com was one of the poster children of the dotcom bubble. Its stock rose sixfold after its IPO only to flatline in the years after
Source: Bloomberg

For all the criticism of China's regulators, the fact that the people who were directly impacted will be made whole by an involved broker sounds a lot fairer than what happened in the U.S.

While most financial institutions became more careful after the big settlements paid by the likes of Citigroup, Merrill Lynch  and Credit Suisse -- and some money even went back to shareholders who organized class lawsuits -- just imagine how much larger the losses for brokers might have been if everyone out of pocket came knocking.

Were Wall Street firms held accountable for individual losses, some of the share-sale cases that litter the financial histories of the U.S. and Europe may never have happened. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Many funds found their way back to regulators such as the SEC, which uses them in various ways that seldom include reimbursing investors individually for their losses.

  2. Since acquired by Bank of America.

To contact the author of this story:
Christopher Langner in Singapore at clangner@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net