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Media & Entertainment

Hong Kong police arrest 15 in Next Digital stock trading ring

Officers allege group pocketed $5.5m by distorting market for publisher's shares

Hong Kong police searched the offices of Next Digital on Aug. 10 in conjunction with the arrest of founder Jimmy Lai and several executives for alleged violations of the city's national security law.    © Reuters

HONG KONG -- Hong Kong police arrested 15 people on Thursday for manipulative trading in the stock of Next Digital, publisher of the feisty Apple Daily newspaper.

The police alleged the group raked in more than 38 million Hong Kong dollars ($5.49 million) in what officers described as a conspiracy to defraud the public. One person was said to have netted more than HK$25 million from the scheme.

Members of the group, who are also under investigation for dealing with the proceeds of crime, engaged in more than 13,200 trades, involving 1.69 billion Next shares, between Aug. 10 and Aug. 12, the police said.

On the first two of those days, Next was the most heavily traded stock on the city's busy exchange, with volumes topping even those of investor favorite Alibaba Group Holding. Next's average daily trading volume since Jan. 1 is just 61.26 million shares.

"We have reasonable grounds to believe that it was not ordinary market speculation activity," said Chung Wing-man, chief superintendent of the narcotics bureau, which also investigates financial crime, at a news briefing. The transactions were intended, she said, "to push up the trade volume to distort the market situation to attract innocent members of the public to invest."

Next Digital shares moved wildly over the period cited by the police, initially in reaction to news of the arrest of Chairman Jimmy Lai and several other company executives for alleged violations of the city's national security law and of a search of the company's office by 200 police.

The company's stock first fell to a new low of 7.5 Hong Kong cents on Aug. 10 but then almost reached a 12-year high of HK$2 the next day amid online calls by activists to buy the stock, before settling at a level of around 35 Hong Kong cents where it has largely remained since.

A similar pattern was reenacted on a smaller scale on Thursday afternoon after news leaked of the latest arrests. The shares dropped 19% to 23.5 Hong Kong cents after the midday break then climbed to a high of 59 Hong Kong cents before closing up 36.7% for the day at 41 Hong Kong cents.

Chung said that in a number of instances in mid-August, the same parties placed buy orders immediately after sell orders, even before the sell orders had been executed.

Asked whether police could be certain that investors were misled into buying Next shares rather than purchasing them to show support for Lai and Apple Daily, both known for vocal criticism of the Hong Kong and Chinese governments, Chung said: "We are not sure. It is very likely that we may never find out because investors have many reasons to invest in a particular stock.

"But objectively speaking, it is very likely that some investors were attracted by the massive increase in trading volume, which was a false market situation," she said.

Market manipulation investigations are usually conducted by the Hong Kong Securities and Futures Commission. A spokesperson for the body declined to respond to queries Thursday about the Next case.

Law Ka-chung, formerly the chief economist at Bank of Communications (Hong Kong), said police involvement "could be taken as a signal or a warning by the authorities to the Hong Kong public to stop supporting or bidding up yellow-economy stocks," referring to companies seen as sympathetic to anti-government protesters. "They are trying to strike fear."

The police said they are still tracking down the proceeds of the suspects' stock trading. The group, which included 14 men and one woman aged between 22 and 53 who connected through social media, included a member of a triad gang, six unemployed people and at least one civil servant, the police said.

Since Lai's arrest, Apple Daily's sales of newsstand copies and advertisements have also surged. 

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