Star fund manager found guilty of insider trading

PUBLISHED : Friday, 10 June, 2011, 12:00am
UPDATED : Friday, 10 June, 2011, 12:00am


Xu Chunmao, a star fund manager on the mainland, has been put in police custody for criminal investigations after he was found to have conducted insider trading.

The 37-year-old Xu, a former vice-president of Lombarda China Fund Management, has become the most senior manager in the mainland's asset management sector to be convicted of insider trading.

According to a statement by the Shanghai Asset Management Association, a government-backed consortium of fund houses, Xu used the tactic of front-running to pocket illicit gains during his tenure at Everbright Pramerica Fund Management between 2006 and 2010.

Xu moved to Lombarda in May last year before the China Securities Regulatory Commission launched a probe into suspicious trades by him. 'The Shanghai branch of the CSRC completed investigations ... and he was found to have infringed upon the amended criminal law,' the statement said. 'Xu's case was passed to police for further investigation.'

Front-running is a widely used tactic that fund managers can use to ensure high returns. Before making a decision to use a multibillion-yuan fund to buy shares of a target stock, they secretly buy up thousands of the same shares for their own portfolio. When the fund starts to build its position in the stock and the price is bid up, the fund manager can cash out, having made a killing.

Xu used other people's brokerage accounts to trade shares, the statement also said.

His conviction was the product of a crackdown on rogue traders since 2007, when fund managers Tang Jian and Wang Limin were busted.

But the CSRC investigations have netted only seven rat traders so far. Analysts say the existing monitoring and investigation mechanism is not efficient enough.

Xu was the first fund manager convicted of rat trading this year.

The country amended the criminal law in February 2009, making it possible for rat traders to face up to 10 years in jail. The first batch of convicted traders, including Tang and Wang, were banned from playing stocks and fined 500,000 yuan (HK$600,000) each.