Manager probed for insider trading, market manipulation
After reports surfaced over the weekend that Xu Xiang, a high-profile investor in China, had been detained by authorities on charges of insider trading and price manipulation, several stocks that Xu and his company, Shanghai-based Zexi Investment Co, invested in tumbled on Monday.
Shares of Ningbo Kangqiang Electronics Co slid 10.02 percent to close at 21.38 yuan ($3.37), while Deluxe Family Co's shares dropped 9.96 percent to close at 12.38 yuan.
Xu is a major shareholder in both companies, holding stakes of 5 percent and 5.62 percent, respectively, according to a report from news portal sina.com.cn on Monday.
Another company, China Seven Star Holdings, in which Xu also holds a major stake, halted trading on Monday, with no reason immediately provided.
Xu was detained by authorities "in recent days" for allegedly engaging in insider trading and manipulating stock prices, the Ministry of Public Security said, the Xinhua News Agency reported on Sunday.
Zexi's offices in Shanghai and Beijing were closed on Monday as authorities continued to investigate the firm, interviewing employees and looking through documents, according to media reports.
Xu, who became a legendary private fund manager in China, managed more than 10 billion yuan. Some of Zexi's products yielded returns of about 250 percent, and its star products, funds No.3 and No.1, took the top two slots on the performance rankings in the Chinese mainland, financial information portal cnbc.com reported on Monday.
Xinhua also reported that Shanghai police are targeting two foreign investors for alleged manipulation of the Chinese futures market.
The foreign nationals, identified as Georgy Zarya and Anton Murashov, remained at large, but Chinese authorities said they would seek international cooperation to hunt down the suspects, according to a separate Xinhua report on Sunday.
Zarya and Murashov, who remotely control Yishudun International Trade Co, which is registered in East China's Jiangsu Province, allegedly hired Chinese employees and used proprietary computerized trading software to manipulate the market, Xinhua said.
Several employees of the company, including the manager, have been arrested, relevant accounts have been frozen, and an investigation is still underway, Xinhua reported.
Xu Guangfu, an analyst at Shanghai Yinji Asset Management Co, said that the two incidents showed the determination of the government to crack down on wrongdoings in the financial market after the market crash this summer.
Due to limited staff and equipment for regulating the financial market, and given the lucrative nature of the sector, there are a lot of issues, Xu told the Global Times on Monday.
He noted that regulations had centered on the appraisal of stock prices, but now the focus has shifted to both prices and procedures.
Since a market meltdown over the summer when the benchmark Shanghai Composite Index slumped 40 percent and fell below 4,000 points in July, authorities have intensified a probe into market manipulation, with multiple government agencies, including the Ministry of Public Safety, being called to join the efforts.
This is an issue of national security, said Dong Dengxin, director of the Financial and Securities Research Institute at the Wuhan University of Science and Technology, noting that building a "healthy financial market" is essential.
"We were so focused on opening the market before, and not dealing with issues existing in the financial market," Dong told the Global Times on Monday, adding that some investors have taken advantage of loopholes in the system to make profits.
He said that recent investigations and new regulations on market manipulation will set up a "high voltage cable" to prevent investors from engaging in illegal activities.
Xu echoed Dong's view, and noted that it is necessary and beneficial to build a better-regulated financial market in the long run.
