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October 24, 2011

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Pawn shop pays price for backing stock trader

A PAWN shop that lent a woman 1.4 million yuan (US$219,270) to play the stock market has been told by a court to pick up half the losses after her investments went bad.

Changning District court ruled that the deal by the shop, which was not named, went beyond a pawn shop's legitimate business and violated the country's stock investment regulations.

Judges told the pawnbroker to shoulder half of the 1.14 million yuan losses, plus interest paid and other charges - a total of 642,000 yuan.

The investor, surnamed Rao, handed over 1.42 million yuan cash to a pawn shop and on the back of this borrowed another 1.4 million yuan in 2007, the court heard.

The total sum was deposited into a special account for Rao to trade stocks - with her taking all the risks.

Rao was to pay the pawn shop 2.4 percent of the 1.4 million yuan every month as interest. The pawnbroker could sell all the stocks if the account balance dipped below 1.97 million yuan - something it never did.

The deal would run for six months, at the end of which, the 1.4 million yuan would be returned to the pawn shop and all remaining cash amassed would go to Rao.

However, in the six months Rao lost more than 1.14 million yuan in trading.

When the term expired, the pawn shop returned 206,000 yuan to Rao.

In July 2010, she sued the pawnbroker, claiming the agreement was invalid.

The pawnbroker argued this was a new form of business for the industry and that the agreement should be honored.

But the court ruled the shop was actually lending money to clients to invest in stocks, which it was not qualified to do, and that Rao could not be held to the agreement.


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