15 investors who allegedly made HK$38.7 million in profit from Next Digital’s rally last month have been arrested by Hong Kong police over accusations of market manipulation.
Officers from the Narcotics Bureau arrested 15 individuals yesterday and their seized computers, phones and bank documents while freezing accounts with up to HK$30 million ($3.9 million).
The arrests and raids were made over accusations of market manipulation after local media firm Next Digital saw its stock price rally by over 10-fold last month, following the arrest of its founder and vocal Beijing critic, Jimmy Lai. Alongside surges in the price of other perceived pro-democratic media shares, the event was widely viewed as a historic showing of solidarity.
According to authorities, there were 13,200 transactions accounting for $190 million in share value and 23.8 percent of total turnover between August 10 and 12.
Creating an «Illusion»
According to Narcotics Bureau head Chung Wing-man, the arrests were made based on the belief that suspects created the illusion via social media posts that many people were trading Next Digital shares. When asked if making social media posts to suggest buying Next Digital stock would risk arrests, Chung did not comment and said that «we cannot eliminate any possibilities at this moment».
«Investors have many reasons to invest in a particular stock,» he said, according to an «SCMP» report.
«But objectively speaking, it is very likely that some investors were attracted by the massive increase in trading volume. That’s why we have reasonable grounds to believe the arrested persons committed the offenses.»
Coordination Claims
The trading patterns of the suspects were almost identical which they claimed warranted suspicion that they knew each other, police added.
«The group bought and sold the shares at the same price frequently in a very short period of time,» said the bureau's superintendent Chow Cheung-yau. «When the selling command had not even been executed, the suspects [were already buying more] shares at the same or similar price.»
The frequency of transactions, according to Chow, helped the police distinguish between regular investors and the alleged market manipulators.
Money Source
In addition to manipulation, the police are also casting doubts on the origins of the funds. The 15 involved allegedly include a firefighter and two securities dealers with the remaining claiming to be either jobless or self-employed.
Aged 22 to 53, the arrested included a 27-year old jobless male that allegedly made $3.2 million, according to authorities, alongside another four that made $130,000 over a three-day period.
Where is the SFC?
The police force’s lead on the investigation is a deviation from protocol which tasks the Securities and Futures Commission (SFC) with regulating the city's securities and futures markets.
Neither the Hong Kong police nor the SFC have commented on the latter’s involvement in the matter.
The arrests sparked another Next Digital rally yesterday with a trough-to-peak surge of around 100 percent.
