Caixin
May 17, 2021 08:35 PM
FINANCE

China Securities Regulator Probes ‘Pump and Dump’ Allegations

The launch of investigation indicates the CSRC has some evidence in hand, knowledgeable sources told Caixin. Photo: VCG
The launch of investigation indicates the CSRC has some evidence in hand, knowledgeable sources told Caixin. Photo: VCG

China’s securities regulator has launched an investigation into potential “pump-and-dump” schemes where stock promoters allegedly worked with companies to try to push up the prices of stocks listed on the domestic A-share market, seeking to lure in retail investors before dumping their holdings, leading to sharp swings in stock prices.

The China Securities Regulatory Commission (CSRC) is probing trading accounts suspected of manipulating the stock prices of Jiangsu Lettall Electronic Co. Ltd. (603629.SH) and Zoy Home Furnishing Co. Ltd. (603709.SH), among other companies, it said in a statement (link in Chinese) on Sunday.

The launch of investigation indicates the CSRC has some evidence in hand, knowledgeable sources told Caixin. The regulator is looking to clamp down on shady investment practices that hurt retail investors.

The scandal, revealed earlier this month by a private fund manager involved in the practice, gives a glimpse into how publicly traded companies on the A-share market, along with fund managers and brokers who promote their stocks, can manipulate stock prices with bogus news and stock analysis touting their perceived value.

These intermediaries often make positive claims about the firms, then pour in huge amount of funds to buy stocks, boost prices and lure retail investors, and then dump the shares shortly afterward.

Ye Fei, the private fund manager, previously punished as a stock swindler, has made headlines across China and evoked heated public discussion. His posts on the Chinese social media platform Weibo since May 9 have accused (link in Chinese) Zoy Home of manipulating its stock price and failing to pay a broker who had bought its shares but ended up with huge losses, among other accusations.

The broker, Minsheng Securities Co. Ltd., bought more than 15 million yuan ($2.3 million) worth of Zoy Home shares on March 31, Ye said. However, its share price slumped 8.8% that day.

Ye’s barrage of accusations target at least 18 listed companies (link in Chinese), including Shandong Longji Machinery Co. Ltd. (002363.SZ), Visionox Technology Inc. (002387.SZ), Guangzhou Haozhi Industrial Co. Ltd. (300503.SZ) and Eastern Pioneer Driving School Co. Ltd. (603377.SH), according to the posts.

Zoy Home and Eastern Pioneer have denied Ye’s accusations, saying in filings in response to the Shanghai bourse’s request for information that they were not involved in “value management” practices nor did they know or contact Ye.

Most companies named by Ye saw their stock prices drop sharply on Monday.

Ye himself was fined (link in Chinese) 20 million yuan by the CSRC in 2015 for manipulating the market. The private fund management license of his investment company was canceled (link in Chinese) in 2019 by the Asset Management Association of China.

The CSRC pledges “zero tolerance” for violations including vicious market manipulation and insider trading, according to the Sunday statement. In recent years, some stock market actors have taken advantage of shareholding, capital, inside information and technology to conspire to manipulate stock prices, seriously harming investors’ interests and disrupted the market order, it said.

The regulator said it has investigated a total of 65 cases of suspected market manipulation since 2020. Wang Yue, controlling shareholder of Chinese game developer Kingnet Network Co. Ltd. (002517.SZ), got sentenced to five years and six months in prison and fined 10 million yuan for stock manipulation, the company said in a filing in late December.

The A-share market has more than 185 million (link in Chinese) investors, the majority of whom are retail investors.

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Cover Story: The Losing Game for Chinese Retail Investors

Contact reporter Luo Meihan (meihanluo@caixin.com)

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