Question: Why did AI · Galaxy Securities win the lawsuit but still face regulatory penalties?

Author | Liu Yinping

Editor | Fu Ying, Gao Yuanshan

Source | Dujiang Finance

Five years ago, Yang Lin (pseudonym) was still within the respectable threshold of Beijing’s middle-class life—wealthy family background, good education, a career that drew attention—until an unexpected stock price “avalanche” struck.

In 2020, Yang Lin and her family heavily invested in “Rendong Holdings” through a margin account. Initially, the account balance kept rising rapidly, like a snowball rolling bigger and bigger. But in winter 2020, the snowball suddenly collapsed—14 days, 14 limit-downs—no escape, no stop-loss—her account was wiped out.

Over ten million yuan in funds turned negative in just a few days. Before recovering from the shock of huge losses, she faced nearly ten million yuan in recovery claims from China Galaxy Securities (601881.SH).

She lost the first trial, lost the appeal, but she didn’t stop. She studied securities laws and regulations, organized trading records, and filed complaints with regulators… Over five years, her life has been closely tied to that stock. To this day, she continues to fight for her rights in this margin trading dispute, trying to prove she is also a victim. Even after losing the case, she persists in her stance.

Under the avalanche, no snowflake is innocent.

1

Borrowed millions to trade stocks and got wiped out,

Owe Galaxy Securities over 9 million yuan after losing principal

During the dramatic stock price collapse of Rendong Holdings, only those who experienced it firsthand know that it was a family’s years of savings, exchanged for an unpayable bill after a gamble with capital.

In 2020, Yang Lin’s family of four—herself, her husband, and elderly parents—all opened margin accounts with Galaxy Securities and heavily invested in Rendong Holdings. According to her, each invested over 3 million yuan of their own money, borrowing about 4 million yuan from Galaxy Securities. This was just her account; the total principal and financing for the family exceeded ten million yuan.

When the stock price collapsed, their accounts’ maintenance margin ratio quickly fell below the liquidation threshold. Although Galaxy Securities issued margin calls the next day, in the face of continuous limit-downs and liquidity exhaustion, the margin call was meaningless.

After 14 consecutive limit-downs, on December 15, 2020, her heavily leveraged Rendong Holdings stock was finally liquidated. But before she could recover from the dizzying losses, a harsher reality appeared: not only had they lost all their principal—over ten million yuan—but, according to court documents, after liquidation, the remaining funds in their accounts were seized by Galaxy Securities, leaving the four of them owing over 9 million yuan in margin debt.

In March and October 2021, Galaxy Securities sued Yang Lin and her husband and parents in Beijing Xicheng District People’s Court, demanding repayment of all debts.

This image may be AI-generated source: Cankao图库

In court, Yang Lin’s family was in despair. They believed Galaxy Securities had violated regulations first. They are middle- to low-risk investors with modest incomes, but the defendant’s risk assessment answers indicated a more aggressive risk level, thus meeting account opening criteria. Yang Lin denied the authenticity of her signatures on the “Margin Trading and Short Selling Risk Disclosure,” “Investor Education Record,” and “Suitability Assessment Confirmation.” Her husband admitted signing the investor education record but denied receiving relevant training; similar falsifications were alleged regarding her parents’ documents.

Yang Lin and others argued that Galaxy Securities forged signatures, provided insufficient risk warnings, and induced them to open accounts to earn commissions. They requested liability reduction and sought handwriting verification of signatures.

Source: Court Judgment Website

It’s noteworthy that when opening the margin account, Yang Lin’s mother was over seventy, and her father was nearly 70. Their prior risk assessments were only “conservative” or “steady,” which did not meet the high-risk capacity required for margin accounts. Although industry rules do not restrict opening margin accounts for investors over 70, securities firms tend to be more cautious with such clients.

Yang Lin repeatedly stated that her parents were induced to open margin accounts despite insufficient risk capacity, with staff forging documents and forms. Feedback from regulators after the case shows that the Qingdao Haikou Road Securities branch indeed had issues such as employing non-regular staff and improper operations.

Galaxy Securities stated that, at account opening, they disclosed the risks of margin trading and did not recommend high-risk investors to open such accounts. Investors were aware and agreed to bear the risks themselves. Before opening, Yang Lin’s mother completed an online risk assessment, which classified her as relatively aggressive.

During the first trial, Yang Lin did not present more favorable evidence. In 2022, the court ruled against Yang Lin’s family, requiring full repayment, based on the fact that their signing of the “Margin Trading Contract” reflected their true intent, and Galaxy Securities had fulfilled its suitability obligations. Under these circumstances, the request for handwriting verification was deemed unnecessary.

Unsatisfied, they appealed to Beijing Financial Court. During the second trial, Yang Lin obtained more evidence, including account opening records, risk assessments, investor education records, and regulatory feedback, which the Beijing Securities Regulatory Bureau recognized as indicating irregularities in staff conduct during the margin business.

However, the court upheld the first-instance judgment. In the live “double recording” video, Galaxy Securities clearly explained the risks, investors acknowledged understanding, and they had engaged in multiple stock trades and adjusted margin rates. The margin contract was deemed legal.

Source: Cankao图库

Yang Lin also argued that when stock prices hit limit-downs and accounts faced margin calls, the broker failed to take timely and effective forced liquidation measures, worsening her losses.

According to the “Margin Trading and Short Selling Contract,” when the account’s maintenance margin ratio fell below 130%, Galaxy Securities should execute forced liquidation within T+2 days (i.e., December 7, 2020). The investor claimed she placed sell orders herself, but the securities firm could still forcibly liquidate her account with priority over her orders, and the transaction would be executed preferentially.

Researcher Yu Fenghui from China Financial Think Tank believes that when continuous limit-downs prevent investors from selling, securities firms have the right to prioritize liquidation, which carries priority in execution. This is to prevent additional risks from market volatility.

In fact, some investors reported that on December 4, 2020, during Rendong Holdings’ eighth limit-down, they managed to escape using Huaxin Securities’ fast-track channel, selling at 25.9 yuan per share. Yang Lin’s liquidation occurred when the stock was below 13 yuan.

Galaxy Securities claimed that investors had already sold their shares to repay loans, and the stock quantity available for sale was zero, so the firm could not forcibly liquidate.

Despite Yang Lin providing more evidence and some of her complaints being recognized by regulators, and despite penalties against the involved branch for violations, she still lost the lawsuit against Galaxy Securities.

In late 2023, the Beijing Financial Court issued the second-instance judgment, upholding the first-instance ruling. The final judgment required Yang Lin, her husband, and parents to repay Galaxy Securities a principal of 9.6599 million yuan, interest of 115,900 yuan, plus penalty interest, legal fees, and over ten thousand yuan in litigation costs.

Over two years after the judgment, Yang Lin did not give up. She repeatedly organized case materials, filed complaints with the CSRC and other regulators, seeking hope outside judicial channels. Despite the legal defeat, she insists that the root cause of this tragedy lies in the broker’s neglect of suitability management. However, outside opinions suggest that her family’s aggressive, risk-exceeding investments also played a significant role in the tragedy.

2

The story of “monster stocks” and pitfalls

The “monster stock” Yang Lin’s family invested in—Rendong Holdings—is a fintech company mainly engaged in payments, once a “star stock” on the Shenzhen Stock Exchange’s main board.

Back to late 2019, Rendong Holdings was a shining star in the market. This third-party payment company’s stock price soared from late 2019, quadrupling within a year. On November 20, 2020, it hit a high of 64.72 yuan during trading.

Despite the soaring stock price, Rendong Holdings’ fundamentals were not optimistic. In 2019 and the first three quarters of 2020, the company lost over 20 million yuan each period and faced overdue loans and liquidity issues. Under these circumstances, the stock’s rise seemed tempting: in November 2019, Beijing Haidian Guozi Haike Jin Group took a controlling stake, fueling market hopes of state backing.

Source: Cankao图库

It was at this turning point—December 2019—that Yang Lin, using her margin account opened in 2016, first bought Rendong Holdings shares.

By August 2020, after the stock had risen for half a year, Yang Lin’s husband and parents opened margin accounts at Galaxy Securities’ Beijing Xueqing Road branch (now renamed “Beijing North Fourth Ring Securities”) and Qingdao Nanjing Road branch (now “Qingdao Haikou Road Securities”). Starting in August, they entered the market, adding positions multiple times, tying their family wealth to this “bull stock.”

At that time, many margin traders like Yang Lin’s family were involved. The margin balance for Rendong Holdings surged from 1.354 billion yuan at the end of June 2020 to over 3.4 billion yuan by mid-November—a frenzy of capital.

But all good things come to an end suddenly. On November 18, 2020, an announcement revealed that Haidian Guozi Haike Jin Group’s custody period had expired and would not be renewed; the actual controller reverted to the original owner, Huo Dong. Market confidence collapsed instantly. From November 25, Rendong Holdings’ stock price plunged with 14 consecutive limit-downs.

Yang Lin’s accounts quickly turned red. According to court documents, as of December 3, 2020, Yang Lin’s account had a margin debt principal of 4.7309 million yuan, with a profit/loss of -2.0244 million yuan, and a maintenance margin ratio of 118.37%; her husband’s account had a principal of 4.2054 million yuan, with a loss of -2.1135 million yuan, and a ratio of 120.18%.

On December 4, Galaxy Securities sent a margin call SMS: if not replenished promptly, forced liquidation would start on December 7.

In despair, Yang Lin’s family placed sell orders at limit-down prices daily, but for 13 trading days, the daily transaction volume was only between 4.356 million and 21.995 million yuan. With a 3 billion yuan margin position, they had no way out.

Regulators intervened on December 9, suspending margin trading for Rendong Holdings on the Shenzhen Stock Exchange, as its margin balance reached 25.79% of the free float market cap.

On December 15, Rendong Holdings’ stock forum saw mixed feelings. After 14 limit-downs, it suddenly surged to the daily limit (from down to up) in just 39 seconds. Some investors thought the worst was over and wrote “survivor’s reflections”; many margin traders, however, could only despair at the broker’s front desk, as 3 billion yuan of margin was fleeing, with only 1.4 billion remaining.

Following this stock price movement, the CSRC revealed the truth: “Big trader” Jing Hua controlled 83 accounts, manipulating the stock through continuous buying, wash trading, and false reporting, with the highest shareholding reaching 20.43% of the circulating shares during 384 trading days. Ultimately, this manipulation caused a loss of 2.69 billion yuan, and Jing Hua was fined 5 million yuan.

Today, Rendong Holdings has been renamed ST Rendong. In 2025, the company completed bankruptcy restructuring, introducing CITIC Capital and other investors, attempting a rebirth in the third-party payment sector, and has applied to lift the delisting warning. But for those margin traders who lost everything in winter 2020, many are still trapped in the aftermath of the margin call.

3

Leverage investments lead to bitter fruits

In the dispute between Galaxy Securities and Yang Lin’s family over the margin trading, the core lesson lies in the essence of leverage: margin trading is never a simple investment tool. It’s a form of borrowing to generate gains, but it also magnifies risks. Many opening margin accounts only see the potential for higher returns, underestimating the destructive power behind leverage.

Yang Lin’s family concentrated their purchases and added positions during Rendong Holdings’ rising phase, which itself signals danger. During a stock’s rapid ascent, investors are immersed in the thrill of profit, but when the market crashes, losses can be just as fierce.

Source: Cankao图库

The most taboo in investing is “putting eggs in one basket,” especially if that basket is fragile. Heavy concentration in a “monster stock” is less investment and more gambling. Rendong Holdings’ long-term surge was detached from fundamentals. When a stock’s rise can only be described as “monster-like,” it’s often only one last straw away from collapse.

Even more caution is needed because some investors overly depend on financial institutions, believing brokers have a duty to safeguard them, that staff recommendations are safe, and that contracts guarantee security. But the legal and market reality is the opposite: The core of the margin contract is “buyer beware.” Brokers provide tools and channels, not investment decisions or guarantees. Even if staff recommend or verbally promise, ultimately, the investor bears the risk.

Yang Lin insists that the broker was negligent. Legally, whether the broker fulfilled its suitability obligations in margin trading is worth examining. But from another perspective, investment decisions are made by the investor, stocks are bought by the investor, leverage is added by the investor, and the consequences of margin calls are ultimately borne by the investor.

No matter what product an investor purchases, they must first assess their own risk appetite, experience, expected returns, and psychological resilience, choose suitable products, and keep high-risk asset proportions in check.

This wave of events has profoundly changed Yang Lin’s life. She is burdened with huge debts, studying regulations, organizing data, and filing complaints—her perseverance is admirable. But from another angle, investing is meant to improve life, not to consume it. When an investment requires years to prove “I am a victim,” perhaps it was never the right path to begin with.

As the CSRC’s investigation into Rendong Holdings’ market manipulation concludes, the claims process for harmed investors opens. Investors who bought between April 28, 2020, and July 14, 2021, and still hold shares, can file claims regardless of subsequent sales.

However, this window has already closed for Yang Lin’s family. Their account was liquidated on December 15, 2020, and they no longer meet the criteria to claim against Rendong Holdings as of July 14, 2021.

4

Galaxy Securities: Facing investor lawsuits and regulatory warnings

Although Galaxy Securities emerged victorious in this lawsuit, the case also exposed many issues in its operational practices.

Investors argued that their risk level was conservative or steady, but under staff inducement, they opened margin accounts and were encouraged to increase investments for commissions, with forged education records and signatures. While the court did not support these claims, regulators have penalized Galaxy Securities for violations.

Source: Cankao图库

According to Beijing Securities Regulatory Bureau’s reply in January 2025, no evidence of forgery was found in Galaxy Securities’ account opening process for Yang Lin’s family. However, it was found that branch staff sent answers to clients’ knowledge tests for opening the New Third Board trading rights, and a warning letter was issued. This indicates that Yang Lin’s allegations of forgery were not recognized by regulators, but staff misconduct related to the New Third Board business did occur.

Previously, regulators penalized Galaxy Securities for violations in this case. On December 23, 2022, Beijing CSRC issued fines for two violations, including improper conduct by staff in suitability management and margin trading.

According to the “Measures for the Management of Investor Suitability” and the “Management Measures for Securities Firms’ Margin Trading Business (2011 Revision),” Galaxy Securities was found to have violated rules regarding investor access and suitability management.

Following investor complaints and after the final appeal, Qingdao Securities Regulatory Bureau conducted a special inspection of Galaxy Securities’ Qingdao Haikou Road branch from October 31, 2023, to January 19, 2024.

The inspection found violations such as using unregistered labor dispatch personnel to open margin accounts for Yang Lin’s parents; failure to notify clients of additional collateral; and improper use of official seals during account opening, reflecting poor internal controls and compliance.

The penalty notice cited violations of the “Regulations on the Compliance Management of Securities Companies and Securities Investment Fund Management Companies,” indicating issues like insufficient client understanding, failure in suitability management, disorganized staff management, and weak internal controls.

Source: Securities Company and Fund Management Compliance Regulations

Behind this case, the domestic margin trading market is experiencing rapid expansion. In 2019 and 2020, Galaxy Securities’ margin balance reached 52.6 billion and 81.5 billion yuan respectively, with annual growth rates of 31% and 55%, maintaining a market share above 5%.

Along with growth, disputes have also increased. According to Tianyancha, as of now, there are 122 public cases involving Galaxy Securities’ margin trading disputes, peaking between 2020 and 2022. Most involve Galaxy Securities suing individual investors for repayment of margin debts.

A 2024 final judgment case involved investor Liang, who in 2018 borrowed to trade stocks but faced a margin call after stock prices plummeted, owing over 2 million yuan. Liang claimed the agreement was not signed by him, and some trades were manipulated by Galaxy Securities and third parties, causing huge losses.

Both first and second trials ruled in favor of Galaxy Securities, holding that the margin contract was signed by the investor and that Galaxy Securities had fulfilled its suitability obligations.

While most cases favor Galaxy Securities due to contractual clauses, this does not mean the firm is free from compliance issues. As business scales, whether rules are respected and investor protection is prioritized remains a question. These regulatory findings question the “gatekeeper” role.

Leverage has value, but risk is priceless. Markets are unpredictable, and law is relentless. The margin contract not only teaches a family lesson but also prompts the entire securities market to consider: how to clearly delineate the line between protecting investors and holding “gatekeepers” accountable?

As the 315 Consumer Rights Day approaches, Yang Lin’s experience serves as a warning to others. Investing in stocks requires constant caution: risk exists, invest prudently, and build a strong “firewall” for yourself and your family. What other investment cases around you deserve reflection? Share in the comments.