Analysts Suspended After Racy Client Party Video Goes Viral
(Bloomberg) -- Two analysts at a major Chinese brokerage were suspended on Tuesday after a racy video of them partying with clients went viral, underscoring concern that some sell-side researchers are going too far to win votes for the country’s most important analyst ranking.
Founder Securities Co., a Chinese partner of Credit Suisse Group AG, suspended the analysts after a preliminary investigation, citing video and photos that brought “severe damage” to the firm’s reputation. The analysts were also barred from this year’s New Fortune research contest, a hyper-competitive Chinese version of the Institutional Investor research poll. Voting for this year’s rankings started on Tuesday and runs through Sept. 27.
The episode highlights the stakes for Chinese analysts as they vie for top spots in the New Fortune rankings, which can have a huge bearing on their paychecks and status in the industry. The competition, hosted by a state-run magazine, is one facet of China’s capital markets that international securities firms will have to navigate as the country eases foreign ownership restrictions in its brokerage industry.
“In general, some analysts are taking it too far,” said Hao Hong, Hong Kong-based head of research at Bocom International Holdings Co. “This year is much better than the past, but there’s still room for improvement.”
The video circulating online reveals brief flashes of what appeared to be a raucous dinner party. A man and a woman hugged and kissed while a couple of men raised their shirts to expose their torsos.
Compensation levels at many Chinese brokerages are tied directly to the New Fortune rankings, and the impact of winning a top spot can be massive. While run-of-the-mill analysts with five years of experience earn the equivalent of about $75,000 a year in China, someone who appears on the list can take home $1 million or more.
More than 1,500 analysts from 43 brokerages participated in this year’s competition, and about 1,600 global and domestic institutional investors managing 70 trillion yuan ($10 trillion) will vote.
Contestants undertake grueling roadshows in the run-up to the poll, doing the rounds from Shanghai to Beijing to Shenzhen. Analysts routinely pay for buy-side voters’ meals and hand out “red packets” containing cash or gift cards, according to industry participants.
New Fortune issued a sharp reminder this year about behavior, calling for an independent and honest contest. Rulebreakers will be banned from the competition for up to three years, with lifetime bans for anyone handing out bribes, the organization said, adding that it would also report wrongdoers to the securities regulator.
The final results of the competition will be revealed in November. Qualified analysts cannot be under any regulatory punishment or investigation.
Still, the pressure to appear in the rankings means that some analysts are willing to risk it all.
“If you don’t get ranked in two years, you are gone,” Hong said. “If you don’t get ranked top three within three years, also gone.”
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