New market rules seen triggering spate of scandals

PUBLISHED : Wednesday, 14 May, 2008, 12:00am
UPDATED : Wednesday, 14 May, 2008, 12:00am

The new rules announced by the mainland's top prosecution office to crack down on securities fraud are setting the stage for exposing a series of commercial scandals, analysts and officials say.

'The government will be able to save face by slapping severe punitive actions on market manipulators,' said a Beijing-based source close to the China Securities Regulatory Commission. 'The new rules pave the way for more lawsuits against a group of unethical company bosses and fund managers.'

Directed mainly at cleaning up the stock market, the rules released on Monday by the Supreme People's Procuratorate and the Ministry of Public Security allow investors and creditors to take legal action against a wider range of financial crimes.

The prosecution office and the public security ministry had solicited the CSRC's opinion on several occasions to draft the rules, sources said.

A CSRC deputy department chief said yesterday that the watchdog hoped to stand firm against market irregularities but would use only legal resources to bring offenders in line.

Analysts said the new rules were aimed at appeasing disgruntled investors who got short-changed by big funds that played the markets using insider knowledge.

Analysts criticised the CSRC for putting up a harsh front without taking concrete steps to protect retail investors after it banned two fund managers - Tang Jian and Wang Limin - from the industry and fined each 500,000 yuan (HK$557,800) for insider trading.

The punishment fell short of expectations.

'The detailed rules heighten hopes that more bad boys will be sued in court,' said Mao Nan, a strategist at Orient Securities. 'It is expected that more notorious cases will be made public.'

People who conduct insider trading involving more than 500,000 yuan are liable to be sued, according to the new rules.

Before the rules were unveiled, there was a lack of clear legal guidelines defining insider trading and price rigging.

A judge at Shanghai No2 Intermediate People's Court had said the legal loopholes made giving a verdict difficult.

A CSRC official said the watchdog had to go slow in acting against a large number of market irregularities it uncovered earlier amid an unstable market.

Only a few scandals related to the stock market have been exposed.

A source said the CSRC planned to unveil more scandals this year, hoping to send a message to investors that it would spare no effort in weeding out illegal activities.

Mainland police investigated 366 cases related to securities fraud last year, according to a government statement in January.