Caixin
Sep 10, 2018 06:13 PM
DAILY CHART

Police Freeze Shares in Brokerage Tied to Embattled Conglomerate Fuxing Group

The office of Donghai Securities Co. Ltd. is seen in Shanghai on May 7. Photo: VCG
The office of Donghai Securities Co. Ltd. is seen in Shanghai on May 7. Photo: VCG

Shanghai police are stepping up efforts to secure assets of companies accused of bilking investors out of billions of yuan as the number of cases of financial fraud grows.

The police’s move took place amid an investigation into the Shanghai-based Fuxing Group, the downfall of which has turned into a financial scandal that has become one of the biggest crises ever to hit China’s private equity industry.

In July, Fuxing Chairman Zhu Yidong fled the country amid a cash crunch at the three private equity funds owned by the company, stoking fears about the whereabouts of as much as 30 billion yuan ($4.4 billion) raised from investors and borrowed from banks. The police brought Zhu back to China on Aug. 29.

On Wednesday, the economic crimes division of the Shanghai Public Security Bureau froze some 170 million shares of Donghai Securities Co. Ltd. held by a unit of Shenzhen-listed China Media Group Co. Ltd., according to a statement filed to the Shenzhen Stock Exchange on Friday.

The shares held by China Media Group account for 10.22% of the total shares of Donghai Securities, a brokerage listed on country’s over­-the-counter market.

According to a previous Caixin investigation, freezing the shares held by China Media Group was a move to secure the remainder of Fuxing assets because Fuxing actually controls China Media Group through a number of intermediaries, including a company founded under the name of Zhu’s cousin Zhu Jinlin.

The investigation of Fuxing is a top priority for Shanghai police’s economic crimes division, people close to the local public security bureau told Caixin. On the day after Zhu was brought back to China, Shanghai police sealed Fuxing’s office while they search it for evidence, Caixin has learned.

Shanghai police had said earlier that the China Securities Regulatory Commission has set up a special task force to investigate the accusations against Fuxing, while authorities are assessing Fuxing’s assets and working on plans to compensate investors.

Contact reporter Leng Cheng (chengleng@caixin.com)

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