CITIC Securities Analyst Suspended after Disclosing Drug Firm’s Stock-Incentive Compensation Plan; Zhang Mingfang put information on WeChat, prompting investors and fund managers to make quick exits from group chats

June 16, 2014 Leave a comment

06.09.2014 16:17

CITIC Securities Analyst Suspended after Disclosing Drug Firm’s Compensation Plan

Zhang Mingfang put information on WeChat, prompting investors and fund managers to make quick exits from group chats

By staff reporters Zheng Fei and Liu Zhuozhe

(Beijing) – CITIC Securities has suspended an analyst who put information about Lizhu Medicine Group Holding Co. Ltd. on a messaging app’s group chats.

Lizhu, a medicine company listed in Shenzhen, said it will halt trading of its shares on June 9 until it releases a plan on stock-based incentive compensation for its employees.

Zhang Mingfang, a top analyst in the medicine field at CITIC Securities, disclosed information about the compensation plan on June 6 via the messaging app WeChat. She put details about Lizhu’s plan in multiple chat groups for investors and fund managers on June 6, screenshots of the messages show. She wrote that the information would be announced on June 10.

Lizhu’s spokesperson said it does not know how Zhang got the information and she had not been doing any research at the company recently. Lizhu said it contacted the Shenzhen Securities Exchange about the situation.

The bourse has reported the incident to the China Securities Regulatory Commission (CSRC), a source close to the regulator said. CITIC told its employees to stop posting work-related information on WeChat.

Regulators have been cracking down on insider trading at fund management companies, brokerages and commercial banks. CSRC has 38 insider information cases pending in the wealth management industry.

Zhang apologized in a later post, saying her behavior was inappropriate. Screenshots show that many of the investors and fund managers exited group chats immediately after her first post.

“We will be more careful about using informal tools such as WeChat in the future,” she wrote. “But for those of you who have exited the group chat, don’t you still want our formal analysis reports and telephone conference invitations?”

Zhang is a licensed analyst in the medicine field with more than a decade of experience. She was named the best analyst in the medical and biology fields in 2013 by New Fortune, a financial magazine backed by a subsidiary of Shenzhen Stock Exchange.

Analysts at brokerages have become more aggressive in their tactics due to fierce competition. They compete with each other to send exclusive research results about public companies to client groups, a source in the industry said.

Zhang’s behavior is an extreme case in the trend among analysts, the source said. “Analysts at brokerages are becoming more like journalists these days.”

Zhang got carried away by the competition and may have violated the law, a lawyer familiar with the securities industry said.

The law forbids insiders or people who have illegally obtained insider information from providing it to individuals or groups. Any unpublicized information that would have significant impact on stock trading is considered insider information.

“The information (about Lizhu’s compensation plan) has the potential to affect trading and stock price,” the lawyer said.

Lizhu’s share price closed at 49.1 yuan on June 6, up 2.81 percent. Its share price has risen by 15 percent in the last 15 days

 

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