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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 Group000513.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.

 

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About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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