China Imposes Record $870 Million Fine for Stock Manipulation

Asian Stock Markets

China’s securities regulator has slapped a record 5.5 billion yuan (US$870.6 million) fine on a company for manipulating stocks, the biggest single penalty in the country’s financial industry, in a move that underscores the government’s determination to impose discipline in the freewheeling capital market.

Xiamen Beibadao Group, the country’s largest private owner of cargo railcars, was penalised for being complicit in manipulating the stock prices of Zhangjiagang Rural Commercial Bank, Jiangyin Rural Commercial Bank, and Guangzhou Hoshion Aluminium, all of which are listed in Shenzhen.

Shares of the three companies fell after the penalty was announced. Zhangjiagang’s shares fell by as much as 4.6 per cent, while Jiangyin’s stock posted an intraday loss of 2.3 per cent and Hoshion’s dropped by as much as 1.9 per cent.

The fine on Beibadao is more than 70 per cent of the total penalties imposed last year by the China Securities Regulatory Commission (CSRC). Still, it is not the single largest punishment ever. That distinction went to the 11 billion yuan fine last year imposed by a court in Shandong province on hedge fund manager Xu Xiang, who was found guilty of manipulating stock prices during China’s market rout two years earlier. Xu had 930 million yuan of his illegal gains confiscated, and was imprisoned for 66 months.

Beibadao used borrowed money in more than 300 stock trading accounts to manipulate prices in the three companies, earning itself 945 million yuan in trading profits, according to the regulator’s statement.

Prices of the three stocks, which all more than doubled in February 2017 and reached record highs between March and April, have since plunged from their highs. Zhangjiagang has plunged 70 per cent from hits peak, while Jiangyin has fallen 69 per cent and Hoshion has plummeted 65 per cent from its high.

People involved in the case had refused to cooperate with investigators, and even resorted to physical altercations and attempts to destroy evidence, the regulator said. Beibadao officials could not be reached to comment.

The CSRC said it would step up its collaboration with other regulatory watchdog bodies, including the Chinese centra bank, the insurance and bank regulators, and Hong Kong’s Securities and Futures Commission. It will use big data analysis and cloud computing technology to track real-time trading accounts and activities that show suspicious patterns, the CSRC said.

In an attempt to strengthen enforcement efforts, China has merged the banking and insurance regulators to form the China Banking & Insurance Regulatory Commission, according to an announcement by the State Council earlier this week.

The CSRC has also toughened its scrutiny of companies seeking to raise funds through initial public offerings (IPOs), with approvals falling by 12 percentage points to 79 per cent of all applications last year. That’s the lowest since April 2014, just before the CSRC reopened the IPO pipeline following an 18-month hiatus. In the three years from 2014, approval ratings had averaged 91 per cent every year.

Xiamen Beibadao Group is a company engaging in a wide range of businesses, including logistics, investment consultancy, market information investigation,and sales of electronics, according to public information on the corporate registry system.