A billionaire Chinese hedge fund manager has been jailed for five-and-a-half years for market manipulation in one of the country’s highest-profile financial crimes prosecutions since a market rout in 2015.
Xu Xiang, an investment guru who used to be compared with Carl Icahn, led a loose-knit group of hedge fund managers from the port city of Ningbo known as the “Limit-up Kamikaze Squad” because of their penchant for high-stakes bets.
A court in the eastern city of Qingdao said on Monday that the now 39-year-old Xu had conspired with the controlling shareholders of 13 companies to release favourable information that boosted share prices, before dumping their holdings in block trades from which both parties benefited.
Xu had admitted guilt and expressed regret, the court said, adding that the proceeds of the illegal trades had been confiscated. It did not state the amount. Citing legal sources in Qingdao, respected business news website Caixin said Xu had been fined Rmb11bn ($1.6bn), which it said would be a record for a securities-related fine.
Two of Xu’s collaborators were also sentenced on the same charge, with Wang Wei receiving three years in jail and Zhu Yong two years with a three-year reprieve. It was not clear if any of the three were represented by lawyers.
In his heyday Xu — a self-taught trader who began investing at high school — favoured bold bets on equities. His company Zexi Investment Management had five products among the top 20 in China by total return in 2015, when he was ranked China’s 188th richest person with wealth estimated at Rmb14bn.
He was seen as the “captain” of the Kamikaze Squad, whose name derived from its ability to push stocks up to the 10 per cent daily limit imposed by Chinese exchanges. The Kamikazes found ways to leverage the attention they attracted from other investors, using it to influence herd behaviour in a market where psychology often trumps company fundamentals.
Xu’s trades were much imitated during a year-long bull market in which the Shanghai Composite rose 153 per cent to touch a seven-year high in June 2015. But the index went on to tumble 45 per cent in less than a month, with regulators blaming “malicious“ short-sellers for the rout. Police set up a special task force to investigate, and weeks later shut down a 36km bridge linking Ningbo with Shanghai to apprehend Xu. He went on trial last year.
While regulators have calmed the market, they have made few systematic reforms to counter insider trading. “It’s still a market that’s dominated by inside information, with poor disclosure,” said Fraser Howie, an expert on Chinese financial regulation, adding: “Xu’s biggest mistake was making [his market manipulation] public.”
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