Top Analyst at China’s Citic Securities Under Investigation; Suspected of Leaking Inside Information

Top Analyst at China’s Citic Securities Under Investigation

Suspected of Leaking Inside Information

SHEN HONG

June 20, 2014 6:19 a.m. ET

SHANGHAI—China’s securities regulator is investigating a star analyst at the country’s largest stock brokerage for allegedly leaking inside information, intensifying a campaign to strengthen oversight of a market notorious for irregularities and lax risk controls.

Following weeks of media reports, the China Securities Regulatory Commission confirmed at a routine briefing Friday that it is investigating Zhang Mingfang, a highly regarded analyst with Citic Securities Co. 600030.SH +0.62% Ms. Zhang is suspected of disclosing inside information, the CSRC said, without providing details.

A Citic Securities media relations officer told The Wall Street Journal on Wednesday that the company has suspended Ms. Zhang from her duties and that she is under investigation. He declined to elaborate on the nature of the investigation.

Ms. Zhang hasn’t returned repeated calls seeking comment.

State-run media earlier this month reported that Ms. Zhang was suspected of leaking information about a stock-incentive scheme for management at Livzon Pharmaceutical Group, 000513.SZ +2.80% a Shenzhen-listed pharmaceutical producer based in Zhuhai, Guangdong province.

Ms. Zhang allegedly disclosed the sensitive information June 6 to fund managers and other clients using WeChat, a popular mobile messaging service, local media reported. That same day, Livzon’s share price rose 2.8%.

On June 9, Livzon issued a statement saying it was planning to offer stock incentives and requested that trading of its shares be suspended.

Three days later, the company said it would postpone the scheme because “certain conditions aren’t ripe.” It didn’t elaborate. The next day, Livzon said board secretary Li Rucai had resigned due to unspecified personal reasons.

Livzon officials didn’t returned repeated calls on Friday seeking comment.

Under President Xi Jinping, Beijing has launched a broad crackdown against irregularities and wrongdoing in China’s capital markets, seeking to strengthen risk controls and weed out corruption.

The campaign, which began in the country’s vast bond market, has resulted in the arrests of several dealers and fund managers, most for insider trading.

Illegal disclosure of inside information about listed companies among analysts, fund managers and traders is considered to be widespread. The method of delivering this information has evolved, starting with analysts’ research reports and moving to emails, text messages and WeChat messages.

Analysts and fund managers exchanged valuable and sensitive information regarding corporate transactions and key personnel changes well before they were made public, helping many to profit from trading in the companies’ shares.

Last year, Ms. Zhang was voted the year’s top analyst in the pharmaceutical and biotechnology sectors by fund managers in a prominent securities industry poll in China.