Delist and Get Repaid? There's a Thought

(Bloomberg) -- 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.

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.

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 CitigroupMerrill LynchCredit Suisseeven

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.