• Fri
  • Aug 22, 2014
  • Updated: 11:20am

Massive stock scheme revealed

PUBLISHED : Monday, 12 December, 2011, 12:00am
UPDATED : Monday, 12 December, 2011, 12:00am

The mainland's top securities regulator has revealed its largest market-manipulation case ever, a massive pump-and-dump stock scheme resulting in illegal profits of 426 million yuan (HK$520 million).

The China Securities Regulatory Commission (CSRC) said last week that a company in Guangdong enlisted 30 securities analysts to plant phoney recommendations for hundreds of stocks on television, artificially inflating their value, according to the China Securities Journal.

The company, identified as Guangdong Zhong Hengxin, sold at a profit after prices rose.

The suspect trading involved 148 stock accounts at 44 brokerage outlets and represented a combined transaction value of more than 57 billion yuan. The company invested 2 billion yuan to finance its trades and influenced the value of 552 stocks.

The CSRC referred the case to law enforcement in March 2010 and it remains under investigation.

The crackdown followed a series of high-profile actions carried out under the CSRC's new chairman, Guo Shuqing , the former head of China Construction Bank and an advocate of more relaxed capital controls, according to bankers.

'Based on the latest developments, the CSRS is definitely tightening monitoring efforts, which the market has long awaited,' said Liu Shengjun, deputy director of the China Europe International Business School's Case Centre in Shanghai.

Analysts say two critical flaws exist in the country's stock market: insider trading and a system where the CSRC has too much clout in approving initial public offerings.

Mainland companies that want to list but do not meet the requirements often bribe their way through the regulatory bureaucracy, or call on private equity companies or someone with political connections to influence approvals.

'Reforming the IPO approval system is something beyond Guo's personal capabilities and needs muscle from higher above,' Liu said. 'For now, cracking down on insider trading and irregularities is what Guo can do to promote transparency, fairness and justice.'

While Guo's predecessor, Shang Fulin, had a reputation for being pragmatic and was lauded for his reform in making non-tradeable, state-owned shares in listed companies tradeable, he has also been blamed by investors for the weak and scandal-ridden stock market.

Guo, after taking over the hot seat, has so far rejected several IPOs, inspected rogue traders and announced that he would crack down on securities crimes.

'The CSRC has zero tolerance for insider trading and crimes in the securities and futures markets,' Guo said in Shenzhen earlier this month.

This year the CSRC has investigated 82 securities market cases this year, with insider trading accounting for nearly half. It has imposed fines totalling 335 million yuan and banned eight investors from the market, according to the commission.

Qian Qimin, deputy head of market research at Shenyin & Wanguo Securities, said the CSRC would also need to improve efficiency and enforcement.

'There's no lack of regulation and laws,' Qian said. 'The problem lies within the level of enforcement.'

$70b

Transaction value, in Hong Kong dollars, of trades affected by the mainland trading scam revealed by regulators

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