China Levies Record $870 Million Fine for Stock Manipulation

Updated on
  • Penalty is latest in crackdown since Liu Shiyu took over CSRC
  • Beibadao Group to pay nearly six times what it made: regulator
China fines a company for manipulating the stock market. Bloomberg’s Tom Mackenzie reports.

China slapped a logistics company with fines totaling 5.5 billion yuan ($870 million) for manipulating the stock market, the biggest ever punishment for such an infringement.

Xiamen Beibadao Group was charged with manipulating the share prices of three Shenzhen-listed companies, Jiangsu Zhangjiagang Rural Commercial Bank Co., Jiangsu Jiangyin Rural Commercial Bank Co. and Guangdong Hoshion Aluminium Co., China’s securities regulator said in a briefing in Beijing on Wednesday. It later clarified that the unit’s parent, Shanghai-based Beibadao Group, was the manipulator.

The penalty is almost six times what Beibadao earned by its actions, the watchdog said. Chinese authorities have been mounting a campaign to stamp out illicit behavior in the world’s second-biggest equity market, which is dominated by individual, often first-time investors. Liu Shiyu, chairman of the China Securities Regulatory Commission, said in February 2017 that he would pursue market malpractice and wrongdoing no matter whether it’s “historical or current.”

“The fines will only get bigger and bigger as regulators step up the crackdown on market irregularities, and it’s likely we’ll begin to see similar cases being exposed more frequently in the future,” said Yin Ming, vice president of Shanghai-based Baptized Capital. “It’s a signal to market participants that violent share moves and speculative trades are prohibited, and it’s always the authorities’ priority to maintain a stable market.”

The Shanghai Composite Index’s volatility hit historic lows last year, and despite a recent increase, the market’s swings are far smaller than the wild extremes of 2015 and 2016. Liu, who took on his role at the CSRC in February 2016, told senior officials at the time that strictly supervising the market and checking for manipulation was among their main tasks.

Trading Team

Beibadao set up a team of traders who used more than 300 different accounts from March to May 2017, CSRC officials said Wednesday. A phone call to a number listed for Beibadao was unanswered, and the company doesn’t appear to have a website.

The punishment isn’t the first multibillion-yuan fine handed down by the CSRC since the crackdown began. In March 2017, an individual investor was ordered to pay 1.17 billion yuan in two cases of manipulation, while one month earlier a 3.47 billion-yuan fine was imposed on a company controller, who was also permanently banned from the securities industry for violations on disclosures and manipulation.

In December, an equities trader in the city of Foshan, in Guangdong province, was fined 54 million yuan for manipulating 15 stocks and making a profit of 27 million yuan. A week later, another trader in nearby Shenzhen copped a 1-million yuan fine for a stock-price manipulation plan that actually lost him money. In April, a former stock market official was fined 251 million yuan for illegal trading activities. Unlike the earlier cases, Beibadao’s penalties were aimed at a company rather than an individual.

“In the past, when there was illegal activity in the capital market, the fine was just hundreds of thousands. The cost to violate the rules was so low,” said Hong Hao, Hong Kong-based strategist at Bocom International Holdings Co. “Going forward, as long as there is a similar case, I think the regulators will continue to charge huge fines.”

— With assistance by Yan Zhang, Jeanny Yu, and Amanda Wang

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