‘China’s Warren Buffett’ formally arrested on charges of manipulating securities market and inside trading

PUBLISHED : Friday, 29 April, 2016, 7:46pm
UPDATED : Saturday, 30 April, 2016, 2:42pm

Xu Xiang, a billionaire hedge-fund manager, has been formally arrested on charges of manipulating the securities market and inside trading.

Xu was in the custody of Qingdao police, Xinhua reported on Friday, almost six months after he was dramatically detained on Hangzhou Bay Bridge.

Cheng Boming, the president of CITIC Securities, the brokerage house at the centre of security forces’ probe into the stock market rout, was also formally arrested on criminal charges. So were other CITIC Securities executives, including Liu Jun, the manager in charge of brokerage businesses, and Xu Jun, the division chief of equity investment, Xinhua reported. The police investigation was continuing.

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The downfall of Xu, often called China’s Warren Buffett, and the CITIC executives shed light on the corridors of power and money in China’s infamously volatile stock market. The hedge funds under the management of Xu’s company, Zexi Investment, were discovered to have large holdings in several stocks that were chased by the stock market rescue fund, according to data in the listed firms’ quarterly reports.

“It showed the police investigation found some evidence, but the evidence is by no means the end of the investigation,” said Zhuang Deshui, a governance expert with the Peking University.

“But the most important thing, in my view, is not to put a few bad guys behind bars. Instead, China should find the loopholes in its regulatory system to prevent similar inside trading or market manipulation.”

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China’s stock market crash last summer wiped out US$5 trillion in weeks, sending jitters through global financial markets and angering China’s leadership.

Bloomberg reported that President Xi Jinping gave hand-written instructions to securities officials and law enforcement cadres to protect the interests of China’s retail investors during the investigation of short sellers and other “malicious” traders.

As the benchmark indicator sank 35 per cent in three weeks from mid-June, five of Zexi’s funds reported at least 20 per cent growth in net asset value. At least three of Zexi’s heavily held stocks – Deluxe Family, Shanghai Metersbonwe Fashion & Accessories and Eastern Gold Jade – became popular with China Securities Finance Corporation, the government platform used to stem the fall and boost confidence.

Yao Gang, a former vice-chairman with China Securities Regulatory Commission, and Zhang Yujun, an assistant chairman with the securities watchdog, are also being investigated.