Recently, in a case handled by our firm’s attorneys Yan Huainan and Jin Yuting involving the legal representative of a fund management company suspected of issuing fraudulent invoices—which spanned a one-and-a-half-year process—the case underwent a critical turning point: the charge was initially classified as embezzlement during the investigation phase but was reclassified as issuing fraudulent invoices during the prosecution review phase. Ultimately, the procuratorate, despite facing multiple pressures from regulatory authorities, decided not to prosecute. The client was successfully spared criminal liability and retained a clean criminal record. The long-standing criminal risk was completely eliminated, and the client’s professional career, credit standing, and normal daily life have fully returned to stability. Since accepting the case, the defense counsel thoroughly reviewed the case files, proactively conducted extensive investigations to gather evidence, and engaged in multiple rounds of in-depth communication and reasoning with the prosecuting attorney. Through meticulous defense strategies, they solidified all favorable facts and legal arguments to maximize the protection of the client’s legitimate rights and interests.

I. Case Overview

This case involves a major tax-related criminal case stemming from the collapse of a private equity asset management product. The private equity product in question suffered massive losses, triggering a wave of complaints from investors and exposing the company to the risk of regulatory penalties and operational collapse. The company’s actual controller masterminded the scheme; without any genuine business transactions, he siphoned off funds through the signing of fraudulent contracts, the issuance of fraudulent ordinary VAT invoices, and the circulation of funds, specifically to compensate the affected investors for their losses. The total face value of the invoices involved exceeded 46 million yuan. The client was initially criminally detained on suspicion of embezzlement. After the investigation concluded and the case was transferred for prosecution, the prosecuting authorities adjusted the legal characterization of the case, changing the charge to the crime of issuing fraudulent invoices. The case was further complicated by the fact that it was under the direct supervision of industry regulatory authorities, resulting in stringent review standards, immense investigative pressure, and extreme difficulty in securing a decision not to prosecute.

II. Tackling Challenges Throughout the Entire Case Process

(1) Fully Leveraging the Lawyer’s Advantages in Investigation and Evidence Collection to Secure Key Favorable Documentary Evidence and Refute the Logic Behind the Embezzlement Conviction

Upon accepting the retainer, the defense counsel did not limit themselves to the materials already in the case file. Instead, relying on the rights to investigate and gather evidence granted by the Lawyers’ Law, they proactively conducted intensive and complex investigative work: they visited the fund company involved to obtain first-hand internal documentary evidence, including minutes of internal management meetings, approval documents for special compensation expenses, and internal reporting and approval forms. Combining the obtained internal documents, forensic accounting reports, and a complete set of bank transaction records, the defense counsel compiled a comprehensive “Client Compensation List” and established a complete evidentiary loop demonstrating the sequence: “product losses—decision by the actual controller to compensate—full repayment of funds to investors”:

1. All funds diverted were used to compensate investors in a certain private equity product; no funds flowed into the client’s personal accounts, and there was no withholding, embezzlement, or personal squandering;

2. The entire compensation plan and fund allocation were approved and decided by the actual controller; the defendant merely executed and implemented these decisions and had no independent authority to approve or dispose of funds;

3. As the defendant holds equity in the company, the large-scale compensation payments substantially harmed his own shareholder rights and interests; from a commercial logic perspective, this excludes any intent to illegally appropriate funds, fundamentally negating the basis for the crime of embezzlement in the course of duty.

(II) Precisely Addressing the Core Legal Interests at Stake in the Crime of Issuing Fraudulent Invoices and Constructing a Multi-Layered Defense Strategy to Exonerate the Defendant

The defense counsel, drawing upon the authoritative views of criminal law scholars such as Chen Xingliang and Wang Xin, relevant judicial interpretations on tax matters, and tax audit and enforcement documents, established a comprehensive legal argument framework and submitted two rounds of complete written defense briefs and supplementary evidence:

1. The defendant lacked the subjective intent to defraud the tax authorities: The original purpose of issuing the invoices was solely to resolve a collective redemption crisis involving asset management products and to stabilize investors; there was no subjective intent to evade or offset taxes;

2. This case did not result in a loss of state tax revenue: The tax authorities have already issued a tax adjustment, and the full amount of taxes involved has been paid in full; the core legal interest in taxation protected by the crime of issuing fraudulent invoices has not suffered any substantial harm;

3. The conduct in question constitutes an organizational act carried out by the entity as a whole: The entire invoicing and fund compensation process underwent multiple levels of approval by the actual controller and the directors in charge, reflecting the will of the company as an entity; the defendant merely passively executed management decisions;

4. The distinction between principal and accessory roles must be made: The initiation of criminal intent, the creation of fictitious contracts, and the fund recycling operations were all led by the actual controller and other individuals; the defendant played only a secondary, auxiliary role and should therefore be classified as an accessory under the law.

(III) After multiple rounds of communication and reasoning with the prosecuting attorney to establish the statutory mitigating circumstances, the procuratorate ultimately resisted pressure from industry regulatory authorities and issued a decision not to prosecute

Due to a concurrent risk incident in the private equity industry, this case attracted significant attention from regulatory authorities. Given the high level of public scrutiny and strong external regulatory constraints, the procuratorate faced considerable external pressure in handling the case. During the review and prosecution phase, the defense counsel communicated with the handling prosecutor on multiple occasions regarding the case details, submitting evidence in phases—including primary defense arguments, supplementary defense arguments, internal meeting minutes obtained through subpoena, expense approval forms, and detailed investor compensation records—and engaged in in-depth discussions on the facts of the case, legal characterization, and allocation of criminal liability. At the same time, the defense counsel provided guidance throughout the process to ensure the defendant fulfilled all statutory mitigating circumstances:

1. Voluntarily pleaded guilty and accepted punishment throughout the process, demonstrating sincere remorse;

2. Cooperated with tax authorities to fully pay all taxes involved in the case, thereby recovering the state’s tax losses;

3. The client was a first-time offender with no prior criminal record or misconduct and strictly complied with supervision regulations while on bail pending trial.

III. Case Review and Attorney’s Message

The case involved invoices totaling over 46 million yuan, meeting the threshold for “particularly serious circumstances” under the crime of issuing fraudulent invoices. Coupled with the special context of concurrent oversight by industry regulatory authorities, cases of this nature typically do not result in a decision not to prosecute. The favorable outcome in this case was achieved through two key strategies: First, the defense counsel proactively went beyond the limitations of the case file, overcoming the challenges of obtaining internal corporate documents—which involved high barriers and cumbersome procedures—to secure critical internal documentary evidence such as meeting minutes and expense approval forms. This solidified the core fact that the client was merely an executor with no independent decision-making authority; Second, the defense conducted a meticulous legal argumentation centered on the protected legal interests, subjective intent, distinction between principal and accessory offenders, and the nature of corporate conduct in the crime of issuing fraudulent invoices. At the same time, it used comprehensive evidence to substantiate all mitigating circumstances, thereby progressively reducing the client’s criminal liability.

For senior executives of private equity firms, this case serves as a stark warning: when companies are managing operational risks or compensating investors for losses, they must never resort to non-compliant methods—such as issuing fraudulent invoices or submitting false expense reports—to divert funds, as this can easily trigger dual criminal risks involving both occupational crimes and tax-related offenses. Instead, they should maximize the reduction of criminal liability risks by tracing the flow of funds, ensuring tax arrears are paid, and clarifying primary and secondary responsibilities.