Officers carrying out the raids seized computers, phones and bank documents, as well as froze accounts holding up to HK$30 million. But one lawyer specialising in financial regulation said the city’s stock market watchdog, the Securities and Futures Commission (SFC), should be in charge of investigating the case. Neither police nor the SFC said whether the commission was involved.

The 14 men and one woman, aged 22 to 53, made 13,200 transactions involving 1.69 billion shares, accounting for 23.8 per cent of the stock’s total turnover between August 10-12, according to bureau head Chung Wing-man. The shares in question were worth HK$1.5 billion.

Chung said the force had reasonable grounds to believe the activities were not ordinary speculation, but rather an attempt to distort the market by boosting trade volume in hopes of attracting other buyers.

“Investors have many reasons to invest in a particular stock,” Chung said. “But objectively speaking, it is very likely that some investors were attracted by the massive increase in trading volume. That’s why we have reasonable grounds to believe the arrested persons committed the offences.”

Chung said that after the suspects created the illusion many people were trading, they would post on social media platforms to lure other investors, before selling at a high price.

1,200 per cent rally in Next Digital sparks calls for regulatory probe

Some 7.1 billion shares were traded across the three days, while only 1 million shares changed hands on August 7, the last trading day before Lai was arrested over suspected collusion with foreign forces and police raided the offices of Next Digital, which publishes the tabloid-style Apple Daily newspaper on August 10. Social media was then flooded with messages urging people to buy the company’s stock to support the publication.

Barrister Albert Luk Wai-hung said making such calls did not constitute a crime. What mattered was whether anyone did so with the intention of manipulating the stock price and profiting off it.

Financial regulation lawyer Kevin Yam Kin-fung agreed, noting intention to profit mattered and a social media post per se should not be considered an attempt to manipulate the share price. Yam also said the investigation was justified, given the number of trades involved.

The SFC, an independent statutory body tasked with regulating Hong Kong’s securities and futures markets, has declined to say whether it was involved. But Yam said the SFC should conduct the inquiry as the body had the power to compel suspects to answer questions, noting they had the right to remain silent when interviewed by police.

“The question now is, is this the most effective way to conduct a probe into this?” he said.

Chung declined to comment on whether the SFC was taking part, pointing to a policy of no intervention among the city’s various law enforcement agencies.

Police said the investigation showed some suspects knew each other as their trading patterns were almost identical.

“The group bought and sold the shares at the same price frequently in a very short period of time,” said Superintendent Chow Cheung-yau of the same bureau. “When the selling command had not even been executed, the suspects [were already buying more] shares at the same or similar price.”

The frequency of transactions would help distinguish the 15 suspects from regular investors, including those who bought shares to support Apple Daily, Chow said.

“We are still at the very early stage of our investigation,” Chung said when asked whether residents who took to social media to urge others to buy Next Digital stock were at risk of being arrested. “We cannot eliminate any possibilities at this moment.”

Officers are still investigating whether there was a mastermind behind the scheme, as well as the source of the money used and the whereabouts of the illicit gains.

Chung said the force had serious doubts about the origin of the funds given the suspects’ backgrounds. They included a firefighter and two securities dealers, while the rest claimed to be either jobless or self-employed. At least one had a triad background.

Officers swooped on Lai’s residence in Ho Man Tin on the morning of August 10 to arrest him before detaining his two sons, four senior employees and three activists later that day. The suspected offences were collusion with foreign forces, conspiracy to defraud and money laundering.

Police said numerous investors suffered heavy losses as Next Digital’s share price swung wildly that day and the next, including one elderly person who lost HK$1 million.

“By comparing the highest point to the lowest, the drop is 66.8 per cent, which led to many investors suffering losses,” Chung said, reiterating the operation was not targeting Next Digital, but those who allegedly cheated the market for profit.

Next Digital chief executive Cheung Kim-hung said police had not contacted him nor any colleagues as far as he knew in relation to the 15 people arrested. Buying the company’s stock would not help the firm, he said. Lai had earlier warned investors against rushing to buy shares as the company’s fundamentals did not justify the rally.

On Thursday, after news of the arrests emerged, the share price drifted higher amid heavy trading, hitting 59 cents before closing at 41 cents – a 36.7 per cent jump over the day before. In all, 516.5 million shares changed hands, 24 times Wednesday’s volume.

Under the Crimes Ordinance, anyone convicted of conspiracy to defraud or money laundering risks a maximum jail term of 14 years.

On the day of Lai’s arrest, more than 200 police officers also descended on the Apple Daily’s office in Tseung Kwan O to collect evidence related to allegations that Lai and some colleagues had donated to a group run by three activists calling for foreign sanctions on Hong Kong. Lai and his colleagues have also been accused of defrauding the Lands Department to secure lower rent for the newspaper’s premises.