TMTPOST -- A six-year illicit rebate scheme between a top executive at DeepSeek’s parent company High-Flyer Quant Hedge Fund and employees of China Merchants Securities (CMS), one of the country's leading brokerages, has been exposed, according to an ongoing investigation.
The scheme, which had circulated as rumors in late 2024, has now been confirmed to involve over 118 million yuan (about $16 million) in misappropriated brokerage rebates over the six years.
At the center of the scandal is Li Cheng, former Head of Marketing at High-Flyer, a quant and hedge fund, and Meng Pengfei, the ex-general manager of CMS’s Shenzhen Shennan East Road branch. The duo allegedly engineered a scheme that funneled substantial trading rebates into personal accounts by exploiting a brokerage incentive program and misusing internal connections.
According to media reports and insider sources, Li, who had previously worked at CMS, and Meng collaborated to divert performance bonuses tied to brokerage commissions. Under standard industry practices, CMS allowed brokers to retain up to 40% of commission revenues (after deducting costs) as performance bonuses.
Given High-Flyer’s status as a top-tier high-frequency trading client, the rebate potential was significant.
To channel these funds illicitly, Meng arranged for his relative to be registered as High-Flyer’s exclusive broker. High-Flyer’s trades were then routed through CMS’s designated branch, allowing commissions to be paid into bank accounts controlled by Meng’s family members. Over six years, from 2018 to 2023, the two allegedly extracted a total of about $16 million.
Approximately 20 million yuan went to Li, while Meng kept over 80 million yuan. Another 10 million yuan was reportedly given to Liu Huan, then-head of CMS’s private wealth management division, as a "thank you" for facilitating the arrangement.
The scheme began to unravel in November 2024, when Li was reportedly detained in connection with suspected rebate fraud. At the time, High-Flyer confirmed that Li was assisting authorities with an investigation but claimed no knowledge of any company-level misconduct. A spokesperson stated: “The company has never requested or authorized any rebate arrangements. If such actions occurred, they are purely personal matters.”
Meanwhile, Meng, anticipating legal consequences, allegedly approached then-head of CMS Shenzhen, Gao Xiang, offering 3 million yuan worth of gold bars in an attempt to shield himself from scrutiny. Gao initially accepted the gold but later returned it. Despite this, he was placed under investigation in May 2025 for suspected negligence and violations of party discipline.
Industry Practices Under Scrutiny
The case has reignited scrutiny of rebate practices in China's brokerage and asset management sectors. While commission rebate systems are widely used to incentivize brokers, regulators have long banned the direct return of funds to clients or third parties.
An industry insider described such rebate practices as “essentially commercial bribery,” warning that once exposed, firms and individuals are typically required to repay illicit earnings and may face criminal charges. The source also noted that commission rebate ratios in the industry can go as high as 70–80% for large institutional clients like private or public funds.
Regulators in recent years have stepped up efforts to reduce excessive trading commissions and tighten compliance rules to prevent conflicts of interest and improper fund flows.
Founded in 2015 by Liang Wenfeng, High-Flyer quickly rose to prominence in China’s quant investment world. Liang, who also founded AI research company DeepSeek, has become a well-known figure in both finance and tech circles. A graduate of Zhejiang University with a background in machine vision, Liang led High-Flyer to exceed 100 billion yuan in AUM by 2021, earning the firm a place among China’s “Quant Four Kings.”
As of June 2025, High-Flyer manages over 60 billion yuan and remains one of the largest quant firms in the country. Despite a decline in AUM, the firm is believed to have actively chosen to limit capital inflows, opting to “close the gate” and focus on internal performance.
In terms of returns, High-Flyer continues to deliver strong performance. According to data from Private Fund Rankings, the firm ranked in the top five among 10 billion-plus hedge funds over the past six months, one year, and three years as of May 2025.
The scandal is the latest in a string of compliance challenges for China Merchants Securities. In 2024, the firm was involved in a separate case involving misconduct by 63 employees. In 2025, it has continued to face regulatory scrutiny, particularly in its investment banking and derivatives businesses.
While the firm reported strong Q1 earnings—47.13 billion yuan in revenue and 23.09 billion yuan in net profit, up 10% and 7% year-over-year, respectively—the reputational damage from repeated enforcement actions may weigh heavily on investor confidence.
The High-Flyer-CMS scandal underscores the difficulties regulators face in enforcing anti-rebate rules, especially when such arrangements are hidden behind layers of personal relationships and third-party proxies.
As the boundary between finance and technology blurs, and as quant funds grow more powerful, both asset managers and brokers are likely to face tighter oversight. For regulators, financial institutions, and investors alike, the scandal serves as a reminder: transparency, internal controls, and ethical conduct are non-negotiable in a maturing capital market.
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