China Merchants Securities: Badminton Dispute & Management Issues

A few days ago, China Merchants Securities (600999) Yantai Laizhou Fuqianjie Securities Sales Department (hereinafter referred to as “China Merchants Securities Laizhou Sales Department”) was ordered by the Laizhou Court to compensate the injured employee 10,504 yuan for failing to perform safety guarantee obligations during an employee badminton event.

This seemingly minor civil dispute, together with the recent revelations of China Merchants Securities’ 100-million-yuan commission fraud case and the Wuhan sales department being sued by customers for high commissions, together outline the leading securities firm’s management oversight and compliance difficulties at the sales department level.

The beginning and end of the badminton dispute

The judgment of the Laizhou Court revealed the ins and outs of this case.

On August 1, 2024, Li, who had just joined the Laizhou Sales Department of China Merchants Securities as a broker, participated in a badminton event organized by the company. On that day, due to uneven bulges on the venue, Li was injured on the spot after landing after a jump and was unable to stand. After the injury, Li immediately informed the person in charge of the sales department, but no treatment was arranged. He had to seek medical treatment on his own that night. He was diagnosed with a ruptured Achilles tendon and was hospitalized for 8 days, which cost him 6,345 yuan in medical expenses. Just 26 days later, Li, who was still recovering, fell again due to slippery ground, causing a second rupture of his Achilles tendon and incurring another 4,830.7 yuan in medical expenses.

In May this year, Li formally took China Merchants Securities Laizhou Sales Department to court, claiming various losses totaling 100,314 yuan. Li claimed that the sales department, as the organizer of the event, neither checked for hidden dangers in the venue nor fulfilled its risk warning obligations, and should bear liability for compensation.

The sales department entrusted a lawyer to argue that the activity was a “non-mandatory work arrangement, and employees participated voluntarily. If they did not participate, they only needed to report on WeChat.”

After reviewing and confirming the evidence submitted by both parties, the Laizhou Court finally determined that the relationship between the company and Li was a principal-agent relationship and did not constitute an employment relationship. However, the sales department, as the badminton event organizer, had safety assurance obligations. It failed to promptly investigate safety hazards and inform participants when selecting the event location, and failed to organize timely treatment after the plaintiff was injured. Therefore, it must bear certain responsibilities. However, the court did not support Li’s request for secondary injury compensation, mental loss consolation money, and follow-up treatment fees.

The court finally ruled that the defendant China Merchants Securities Laizhou Sales Department should compensate the plaintiff Li for losses of 10,504 yuan within ten days after the judgment came into effect, and also rejected the plaintiff’s other claims.

Hidden risks in internal governance and compliance

It was clearly a welfare activity, but it turned into a legal safety and health dispute, which reflected the negligence of the internal management of China Merchants Securities Laizhou Sales Department.

In addition, at the business level, this sales department has also been named by regulators. In December 2023, the Shandong Securities Regulatory Bureau issued a warning letter to the Laizhou Sales Department of China Merchants Securities, indicating that in this sales department, a compliance specialist contacted the bank to participate in marketing activities, and the marketing and compliance risk control positions were not effectively separated; the compliance specialist transferred funds to relevant personnel of the bank that assisted in opening an account, and the business department provided items to the bank, which reflected the lack of internal integrity management.

The problems of the Laizhou Sales Department are not an isolated case in China Merchants Securities. The company has recently received regulatory attention due to multiple violations.

On February 9, 2024, China Merchants Securities revealed cases of violations by 63 people. The China Securities Regulatory Commission confiscated a total of 81.73 million yuan. One of them was banned from the securities market for life, and one person was transferred to the judicial authority for suspected insider trading. Administrative supervision measures were also taken against 46 people. Among them, 3 people are planned to be deemed inappropriate candidates, 5 people will be subject to supervisory talks, and 38 people will be issued warning letters.

In August 2024, the “100 million yuan commission fraud case” involving the leading quantitative private equity firm Magic Square Quantitative was exposed. In the six years from 2018 to 2023, Magic Square Quantitative’s marketing director Li Cheng was suspected of conspiring with Meng Pengfei, the then general manager of the Shenzhen Shennan East Road Sales Department of China Merchants Securities, and others to use illegal means. After the incident, Meng Pengfei also attempted to bribe Gao Xiang, the then head of China Merchants Securities Shenzhen Branch, with 3 million yuan in gold in order to escape the crime. Although it was returned, Gao Xiang was ultimately investigated for suspected serious violations of disciplines and laws in 2025.

At the same time, sales departments located across the country, as the front line of business, are also “frequently losing ground.” In December 2024, the Securities Business Department of China Merchants Securities Haikou China Merchants Building received a warning letter from the Hainan Securities Regulatory Bureau. The reason was that for more than two years from August 2020 to December 2022, employees of the business department provided customers with knowledge test answers for opening the Science and Technology Innovation Board and Southbound Connect business through personal WeChat.

The company’s business management departments are not immune either. In December 2024, the Shenzhen Securities Regulatory Bureau once again issued a warning letter to the China Merchants Securities Headquarters, pointing out its management flaws in two core businesses: in terms of brokerage business, there were lagging system updates, individual marketers violating regulations for online business development, and recommending high-risk securities to ordinary investors. Insurance products and other issues; in the more complex and professional OTC derivatives business, the problems are more in-depth, including insufficient institutional systemization, inadequate business isolation, insufficient due diligence and ongoing management of counterparties, and flaws in risk monitoring and valuation model management. In terms of investment banking business compliance, in early 2024, the Anhui Securities Regulatory Bureau took regulatory measures to issue warning letters because it failed to diligently perform its obligations such as supervising issuer information disclosure during the trusteeship management process of the bonds of the “15 Cities and Six Bureaus”.

For China Merchants Securities, the compensation arising from this badminton dispute will not have a big impact on the company, but it reflects the dilemma of China Merchants Securities in branch offices, business department management and personnel compliance. As a leading securities firm with a market value of approximately 146.1 billion yuan, what it really needs to resolve is the tension between scale expansion and refined management, and promote the company’s various activities and business development in a more transparent, standardized, and institutionalized direction.