China Said to Suspect Citic of Insider Trading During Rescue

Updated on
  • Preliminary probe said to find evidence of insider trading
  • Citic says it hasn't been notified on nature of investigation

A Chinese probe found evidence that Citic Securities Co., the nation’s biggest brokerage, engaged in insider trading connected to the government’s rescue of the stock market, people familiar with the matter said.

Investigators suspect that the brokerage used advance knowledge of government-orchestrated stock purchases to execute trades that benefited the firm, said the people, who asked not to be identified because the matter is private.

A Citic Securities spokeswoman said the company hasn’t received any formal notification regarding the nature of the investigation. The China Securities Regulatory Commission didn’t immediately respond to a request for comment.

Citic Securities is one of the brokerages that was drafted in to government-led rescue efforts which have included 1.5 trillion yuan ($235 billion) of stock purchases since June, according to a Sept. 7 estimate by Goldman Sachs Group Inc.

Emergency measures unleashed to counter the nation’s stock bust have also involved a widening enforcement crackdown, with officials targeting so-called “malicious short-sellers” and vowing to “purify” the market.

Shares Tumble

Citic Securities’ shares fell as much as 8 percent in Hong Kong, down more than 50 percent for this year.

Seven Citic Securities executives, including President Cheng Boming, are under investigation for offenses including alleged insider trading, according to state media reports. No comment has been available from those individuals.

Citic Securities is part of Citic Group, the nation’s first state-owned investment corporation, which was set up in 1979 as part of paramount leader Deng Xiaoping’s push to modernize the country.

While the brokerage has said that it’s “business as usual,” the government’s investigations may be having side effects. London Stock Exchange Group Plc’s plan to sell Russell Investments to Citic Securities is faltering and may soon collapse, people with knowledge of the matter said this week.

The plunge in the Chinese stock market since mid-June, as well as investigations into some Citic Securities executives, have derailed the discussions, the people said, asking not to be identified as the information is private. The brokerage had been in advanced talks to buy the fund-management business for about $1.8 billion, a person with knowledge of the matter said in July.

(An earlier version of this story corrected the name of the China Securities Regulatory Commission.)

For more, read this QuickTake: Insider Trading

— With assistance by Paul Panckhurst, and Cathy Chan

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