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.