The landmark ban on a Chinese private equity firm hit by fraud allegations appears to signal that the Asset Management Association of China (Amac) is serious about improving standards in the industry.

The ban imposed on Shenzhen-based Woods Fund and the blacklisting of two of its senior directors were industry firsts, said market participants.

Li Zhigang, Woods chief executive and risk controller, was arrested and detained in August after police discovered large amounts of money had gone missing in relation to a real estate project. Amac announced the blacklisting of Li and executive director Zhou Jianguo last Friday (December 5).

“[The blacklisting] is a severe measure in penalising the manager, meaning he has to disappear in the industry,” said a Shanghai-based private equity manager. Amac, a semi-autonomous body working under the auspices of the China Securities Regulatory Commission (CSRC), was imitating its counterparts in Hong Kong by blacklisting officers in misconduct cases, she added.

This is the severest punishment meted out by Amac for misconduct in the PE industry since the association’s establishment in 2012 and the implementation of the Securities Investment Fund Law in February this year.

The blacklist would indicate those managers and market participants with records of dishonesty and misconduct, said Leon Liang, CEO of Guotai Yuanxin, a subsidiary of Guotai Asset Management.

Moreover, Amac's recently agreed partnerships with international counterparts, such as the Alternative Investment Management Association and the Association of the Luxembourg Funds Industry, suggest it is taking note of global best practice.

A park project in Yunnan province had played a central role in the police and regulators’ fraud investigations.

Woods had partnered with Shanghai Goldstate Brilliance to raise money for the project. But in August police froze Rmb590 million ($96 million) which was deposited in Shanghai Goldstate’s account because the money was under investigation for suspected misappropriation.

(Shanghai Goldstate is a subsidiary of Value Partners Goldstate Fund Management, a joint venture of Hong Kong-based Value Partners and Shenzhen-based Goldstate Securities.)

At the same time Wanjia Gongying, a subsidiary of Wanjia Asset Management, found that Rmb800 million was missing from its accounts. According to local media, Wanjia Gongying had partnered with Shenzhen Jingtai Fund Management to raise money for a segregated-account private fund. Ongoing police investigations have found that along with running Woods, Li Zhigang also controlled Shenzhen Jingtai.

In listing its reasons for the Woods ban and blacklisting, Amac found the firm had not submitted accurate information, including on its Yunnan project and regarding its office details and staff numbers.

Amac also found Woods did not follow compliance rules and did not report Li’s detention or the freezing of its banking account.