Private Equity Funds | Compliance Issues and Countermeasures Regarding Exit via Share Reduction from Listed Companies — Countermeasures Section

Example organizational chart of a private equity fund Generally, the scope of insiders within a private equity fund is determined based on the principle of “substance over form.” Drawing upon our prior practical experience, the main types of projects involving insider information of listed companies include: private equity funds’ participation in non-public offerings of shares by listed companies; involvement in major asset restructurings of listed companies; and post-investment management of pre-IPO projects after successful listing. When a project involves insider information of a listed company, employees and external experts participating in pre-filing review, project initiation, and preliminary review meetings; investment committee (IC) members involved in IC decision-making; finance personnel responsible for settlement and fund disbursement; and post-investment management staff from the post-investment department—all fall within the scope of insiders. Private equity fund management companies must urge such insiders to proactively report to their respective departments and sign confidentiality undertakings. From the perspective of risk isolation and preventing expansion of the insider circle, we recommend that the investment committee deliberate and vote separately on projects involving insider information of listed companies, distinct from other projects. Article 191 of the Securities Law (2019 Revision) stipulates administrative liability for insider trading, with fines reaching up to ten times the unlawful gains. Where an entity engages in insider trading, warnings and fines of up to RMB 2 million shall also be imposed on directly responsible supervisors and other personnel. Article 180 of the Criminal Law (2023 Amendment) prescribes criminal liability for insider trading, with imprisonment of up to ten years. Where an entity commits insider trading, the entity shall be fined, and directly responsible supervisors and other directly responsible personnel may face imprisonment of up to five years. In addition to the above common types of violations, non-compliant share reduction by private equity funds also includes prohibited stock trading by employees and short-term trading. Whether viewed from the perspective of administrative enforcement or criminal justice, the number of related cases has shown a steady upward trend in recent years. (II) Countermeasures As noted at the beginning of this article, since 2024, the China Securities Regulatory Commission (CSRC) will study ways to enhance the timeliness and effectiveness of regulatory measures against non-compliant share reduction—for example, ordering violators to repurchase shares or remit price-difference proceeds to the listed company. For particularly egregious violations or failures to rectify promptly, penalties will be intensified in accordance with law. The high cost of non-compliant reduction serves as a significant deterrent to both private equity funds and their management companies. Share reduction and exit by funds involve multi-departmental and multi-dimensional operational management issues within fund operations. Non-compliant reduction typically signals underlying systemic or institutional vulnerabilities within the fund or its management company. Therefore, to fundamentally resolve the issue of non-compliant share reduction, institutional and systemic corrections are required—specifically, dismantling existing non-compliance “genes” and establishing a robust post-investment management system for private equity funds. A scientific, coordinated, and comprehensive post-investment management system continuously, prudently, and promptly supports compliant fund operations and mitigates legal risks. Such a system plays a critical role before, during, and after the emergence and resolution of non-compliant reduction risks.

Quick Overview of Share Reductions: Summary of Listed Company Share Reductions on September 16

Feilong Co., Ltd. (002536): Henan Wanxi Holding Co., Ltd. completed its share reduction plan. From July 23, 2026, to September 15, 2026, it reduced a total of 6.2112 million shares—representing 1.08% of the company’s total share capital—through centralized bidding and block trading. Jingsheng Mechanical & Electrical (300316): Qiu Minxiu’s share reduction plan expired. From June 16, 2026, to September 15, 2026, she reduced a total of 7.4954 million shares—representing 0.57% of the company’s total share capital—through centralized bidding. Longci Technology (300835): The company’s share repurchase special securities account completed cumulative reduction of repurchased shares. From April 14, 2026, to September 14, 2026, it sold a total of 1.3055 million repurchased shares—representing 1.09% of the company’s total share capital—through centralized bidding. Jinkai Biotech (301509): Qilu (Xiamen) Equity Investment Partnership (Limited Partnership) concluded its share reduction plan period. From August 17, 2026, to August 20, 2026, it reduced a total of 0.37 million shares—representing 0.31% of the company’s total share capital—through centralized bidding. Guo Gao Technology (301510): Beijing Equity Investment Development Management Center (Limited Partnership) completed its share reduction plan. From June 16, 2026, to September 14, 2026, it reduced a total of 4 million shares—representing 0.99% of the company’s total share capital—through centralized bidding. Fute Technology (301607): Changgao Electric Group Co., Ltd. concluded its share reduction plan period. From June 17, 2026, to July 3, 2026, it reduced a total of 5.3252 million shares—representing 2.27% of the company’s total share capital—through centralized bidding and block trading. Tianhe Magnetic Materials (603072): Nantong Yuanlong Venture Investment Partnership (Limited Partnership), citing internal operational and developmental needs, intends to reduce up to 7.9284 million shares—no more than 3.00% of the company’s total share capital—via centralized bidding and block trading between October 16, 2026, and January 13, 2027.

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