Shenzhen-listed Qinghai Digital Net Investment Share Holding Group said its chairman Zhong Xiaojian has been arrested by the public security bureau over illegal fund transfers through a failed brokerage. The China Securities Regulatory Commission (CSRC) started looking into Zhong's involvement in the illegal activities at Kunlun Securities a year ago when the troubled company came under the control of Everbright Securities, Qinghai Digital said. Zhong allegedly misappropriated almost 200 million yuan of client funds through Kunlun Securities to other funds that he partly owned, according to mainland media. Qinghai Digital did not say how much was involved. 'We're not authorised to reveal the specific figure of the misused funds,' said a source who is helping in liquidating Kunlun Securities. Zhong's arrest underscores the efforts by the stock regulator to shore up corporate governance at listed companies as the market revives from a five-year slump this year, and is opening up for foreign investors through the qualified foreign institutional investor scheme. 'As the stock market reform continues, the CSRC is strengthening its supervision of listed firms and improving its capability in cracking down on fund misappropriation and other illegal activities by company executives,' said Citic Securities analyst Chen Xiangsheng. Zhong gained control of Qinghai Digital in 2000 after the State-owned Assets Supervision and Administration transferred about 26 million shares to his Shenzhen Youyuan Investment. Through Qinghai Digital, Zhong controlled Qinghai Securities, which was renamed Kunlun Securities in 2003 after he boosted its capital to 500 million yuan. Kunlun Securities was ordered closed by the CSRC in November last year. Shares of Qinghai Digital fell 4.19 per cent to 3.68 yuan yesterday.