Manipulation probes match hi-tech boom

PUBLISHED : Thursday, 11 November, 1999, 12:00am
UPDATED : Thursday, 11 November, 1999, 12:00am

Possible manipulation in the trading of high-technology stocks has led to an increase in the number of investigations conducted by the Securities and Futures Commission in the past six months, according to market sources.

Paul Bailey, executive director of the SFC's enforcement division, said the commission had 276 cases under active investigation.

This is a 10 per cent increase on the number of cases as at the end of March.

Mr Bailey said that of the 276, 40 concern possible market manipulation, 16 come under alleged insider dealings, while the rest take in alleged short selling and unregistered dealing.

He said the main reason for the increase was the division of a large case into smaller parcels for thorough investigation.

However, stock brokers said the rise in SFC investigations was related to a probe into alleged market manipulation during a recent boom in hi-tech counters.

The commission sent out letters of inquiry to many stock brokers seeking information relating to those stocks whose share prices rose sharply after making announcements of forthcoming technology or Internet plans, brokers said.

These include companies such as Pacific Century CyberWorks, Process Automation (Holdings) and China Prosperity Holdings (Hong Kong), they added.

Last month, Process Automation and China Prosperity issued separate announcements revealing the SFC was conducting investigations into possible market manipulation in the trading of their shares.

Mr Bailey refused to confirm brokers' suggestion.

'The SFC does not focus on a particular sector of stocks,' he said.

'The commission will monitor any unusual share price movements on all kinds of stocks.' Meanwhile, Mr Bailey said the SFC and the stock exchange were still conducting investigations into alleged excessive short selling that occurred on August 27-28 last year, the dates on which the Government intervened in the stock market.

'The SFC has put substantial resources into investigating short selling during the Government intervention,' he said.

'As a result of our extensive investigations, about 1,600 persons, both locally and overseas have been contacted.' A number of overseas regulators were also assisting in the investigations, he said.

Almost half of Hong Kong's brokerages failed to meet settlement deadlines for the short positions they took on August 28, which involved 244 brokers and unsettled trades amounting to $14.67 billion.

The substantial amount of unsettled trades is believed to be related to the widespread use of 'naked short-selling' in which brokers short the market without first borrowing the necessary stock.

According to the stock exchange's annual report for the year to June 30, it conducted 764 investigations in the period, including 486 cases of suspected illegal short selling on the intervention dates.

As at the end of June, the exchange found no basis for action in 501 cases and had taken action in 137 instances.

The remaining 126 cases were still under investigation, it said.

Mr Bailey also said the commission had passed along three insider dealing cases to Financial Secretary Donald Tsang Yam-kuen for a decision on whether or not to hear them in an insider dealing tribunal.