Partner at IDG Capital Involved in Insider Trading Case, CSRC Says

A partner at IDG Capital, specifically from the investment arm in Shanghai, has been implicated in an insider trading scandal involving a Shenzhen-listed company [para. 1]. The China Securities Regulatory Commission (CSRC) from Jiangsu province accused Yu, the partner, of leaking information about a major merger and acquisition deal concerning Jiangsu Tongrun Equipment Technology Co. Ltd (002150.SZ) to a bank employee named Wu Xuhang [para. 2].

According to a CSRC notice issued on May 13, Wu profited over 35 million yuan ($4.9 million) from using insider information obtained from Yu in 2022 [para. 3]. As a consequence, the Jiangsu office of the CSRC ordered the confiscation of Wu’s illicit gains and imposed a fine of double the amount [para. 4].

Based on information gathered from sources close to the matter, Caixin identified Yu Xinhua as the implicated IDG partner. Yu, who joined IDG Capital in 2005, manages investments in new energy and semiconductors. Wu, the bank employee, was working at the Yiwu city branch of China Zheshang Bank Co. Ltd (601916.SH) during the time of the insider trading incident [para. 5].

Yu and Wu have been acquainted since 2016 when IDG began enhancing its relationship with Yiwu’s state-owned enterprise (SOE) regulator to explore investment opportunities. Notably, Zheshang Bank serves as a significant lender to Yiwu’s SOEs [para. 6][para. 7].

In September 2022, Zhejiang Chint Electrics Co. Ltd (601877.SH), a company listed in Shanghai and specializing in smart energy solutions, made plans to list a subsidiary. Tongrun Equipment, known for manufacturing metal tool cabinets, was identified as an appropriate target for Chint Electrics to acquire a major stake in. This strategic move enabled Chint Electrics to merge its subsidiary with the listed Tongrun Equipment, thereby effectively taking the subsidiary public [para. 8].

Tongrun Equipment publicly announced an ownership change plan on November 17 and suspended trading of its shares. This created a window from September 17 to November 17 for potentially lucrative trading based on insider information [para. 9]. On October 29, Yu discovered that Tongrun Equipment had been selected as the target company and relayed this information to Wu on October 30 [para. 10].

Subsequently, between October 31 and November 16, Wu utilized various accounts to purchase 23.8 million yuan worth of Tongrun Equipment shares. He sold these shares for approximately 59.2 million yuan between December 2022 and January 2023, yielding profits of around 35.3 million yuan before deductions for taxes and fees [para. 11].

Although the CSRC has not announced an investigation into Yu specifically for insider trading, when contacted by phone, Yu denied any ongoing investigation and terminated the call [para. 12].

To contact the reporters of this case, Qing Na and Michael Bellart can be reached via their respective email addresses provided in the Caixin article [para. 13].