The first case of "snowball product" loss compensation: Dehehantong acted as the agent in a derivatives dispute and achieved a rare breakthrough verdict.
Recently, a case involving an investment dispute related to a snowball-type structured over-the-counter derivative product (hereinafter referred to as the "snowball product") was heard in the final instance. The case was handled by Wang Yiping, the director of the Shanghai Financial Securities Dispute Business Committee of DHHT Law Firm, and Sun Hong, the co-director. The Shanghai Financial Court rejected the appeal and upheld the original judgment, ordering a certain securities company and a certain investment company to jointly compensate the client for 70% of the actual losses, with the compensation amount exceeding 10 million yuan. The case number for the second instance: (2026) Shanghai Civil Appeals Case No. 527
This case is the first among the existing publicly available judgments where an institution was held liable for compensating damages due to its violation in selling over-the-counter derivatives to individuals; it is also the case among all those involving the channel business, where the channel party bears the highest proportion of liability (70%).
The "snowball product", as a special type of over-the-counter derivative, reached its peak in issuance volume around 2021. In early 2024, due to market fluctuations, a "snowball triggering wave" occurred, causing massive losses for a large number of investors in "snowball products", among whom there were also products with compliance flaws in their promotion, sales, and management procedures.
However, a large number of investors are often deceived by the seemingly legal and compliant appearance, failing to thoroughly analyze the illegal acts of financial institutions, which resulted in the absence of such effective judgments determining that financial institutions should bear liability for compensation before this case.
As a rare and groundbreaking judgment, this case has attracted the attention of many authoritative financial media and the financial industry. It has positive exemplary significance in regulating the sales behavior of high-risk financial products, strengthening the due diligence obligations of financial institutions, and protecting the legitimate rights and interests of investors.
01 Case Background
Under the continuous promotion by the staff of a certain securities company, the client participated in the "Snowball Product" investment transaction through the private equity fund channel established by the securities company. During this process, the relevant financial institutions not only actively promoted the products but also assisted in setting up the transaction framework, coordinating the fund arrangements, and conducting the transactions through the private equity fund as the transaction channel.
Later, due to the extremely high risks of the "Snowball Product", the client suffered significant investment losses. Regarding issues such as whether the financial institution violated the obligation of investor suitability, whether there was illegal sales and illegal establishment of trading channels, and whether it should bear the liability for compensation, both parties had disputes. Wang Yiping and Sun Hong lawyers from DHHT Law Firm represented this case throughout the litigation process. After two years, they overcame numerous obstacles and obtained a favorable judgment for the client.
02 Highlights of Legal Representation Work
There are no precedential cases available for reference.
The investor suitability obligation is a long-standing topic in the field of financial justice. However, the issue of suitability obligation arising from financial institutions' illegal sales of "snowball products" to natural persons has no precedential cases to refer to. It is particularly difficult to persuade the collegial panel to make a groundbreaking judgment. During the first instance procedure, the attorney submitted a large number of written opinions to the court, systematically reviewing the existing legal norms and regulatory rules in the financial field. Eventually, a breakthrough judgment was achieved.
Involving complex financial concepts and structures
Compared with common securities and asset management disputes, off-exchange derivative disputes are extremely rare in the field of financial justice. Moreover, the "snowball structure" of the involved products involves numerous complex financial concepts and calculation formulas, and the collegial panel has significant difficulties in understanding the terms of the transaction documents. During the two-instance proceedings, the attorneys acting on behalf of the clients spent a great deal of effort, breaking down the transaction structure and operational logic of the involved products to the collegial panel, helping them understand the complexity and high risk of the products.
The concealment of illegal acts
The regulatory norms strictly prohibit financial institutions from conducting "snowball products" transactions with natural persons. In this case, the securities company designed a seemingly legal investment structure and used private equity fund products as a channel to conceal the ineligibility of the actual transaction parties.
Natural persons subscribe to private equity fund products as conduits, and then these private equity fund products sign "snowball product" transaction documents with securities companies. All the written documents involved are in compliance in form. The securities company also insists on arguing that its transaction structure is completely legal and compliant. The concealment of this illegal behavior has caused a great obstacle to the evidence collection in this case.
The agent systematically sorted out a large amount of WeChat and phone communication records between the employees of the securities company and the clients. During the trial, he interpreted them word by word to restore the real transaction background. Eventually, the collegial panel broke through the formal "compliance framework" and cited a large number of WeChat communication records to determine that the client was the actual counterparty of the involved product.
Channel Party's Breakthrough Compensation Ratio
In this case, a certain investment company, as a private fund manager, provided the private fund products it managed to the securities company as an investment channel. This is a typical example of a "channel provider" in the channel business. Since the "first case of channel business" - the Huawu Trust case in 2020 - established the judicial rule that the channel provider is not automatically exempt from liability, in judicial practice, channel providers are usually held responsible for supplementary compensation or bear joint liability within a small proportion. However, in this case, a breakthrough was made in recognizing that the investment company and the securities company constituted joint infringement, and both were held responsible for 70% of the joint compensation. This is the case with the highest liability ratio among all the public judgments involving channel business.
03 Case Significance
This case made a groundbreaking determination that financial institutions' act of selling snowball products through establishing private equity channels constitutes a violation. It conducted a comprehensive review of the institutions' actions of actively promoting high-risk products, assisting in the establishment of trading channels, and circumventing investor eligibility requirements. This further clarified the judicial judgment standards for financial institutions' fulfillment of investor suitability obligations, and provided a reference basis for subsequent similar cases.
04 Lawyer's Advice
The suitability management of financial institutions is not only a compliance requirement, but also an important legal obligation for protecting the legitimate rights and interests of investors. For financial institutions, they should fulfill their duties of customer suitability management, risk disclosure, and compliant sales in accordance with the law; for investors, when they suffer losses due to the illegal sale of high-risk financial products, they can also legally safeguard their own legitimate rights and interests in accordance with regulatory provisions and relevant evidence.
The DHHT Law Firm has long been deeply engaged in the field of financial dispute resolution. It continuously provides professional and efficient legal services to financial institutions, listed companies and investors, and is committed to using its professional capabilities to help clients prevent risks, resolve disputes and safeguard their legitimate rights and interests.
