Fifteen held over Next Digital stocks surge

Top News | Maisy Mok 11 Sep 2020

Fifteen people, including six unemployed, were arrested yesterday for manipulating the stock price of Next Digital by repeatedly trading over three days to scoop a whopping profit of HK$38 million.

The 14 men and one woman aged between 22 and 53 were being held last night for money laundering and conspiracy to defraud. Among them was a jobless man who made a profit of about HK$25 million.

They allegedly cooperated with each other through social media to make 13,200 transactions, involving 1.69 billion stocks - accounting for 23.8 percent of the entire market activities - from August 10 to 12.

They were believed to have used Whatsapp to manipulate the stock price, following Next Digital founder Jimmy Lai Chee-ying's arrest on August 10.

The Narcotics Bureau's superintendent for financial investigation, Chow Cheung-yau, said the arrested suspects made "high frequency" transactions at the same time when the stock was low to create an illusion that the stock was active and rising. "Before the selling order could be executed in the market, they bought the stock back again immediately at the same or higher price," Chow said.

Next Digital is a small-cap stock so it is easily manipulated by market makers, Chow said.

Police have frozen several stock and bank accounts of the suspects involving more than HK$30 million.

As there are stock market WhatsApp groups where people discuss buying and selling stocks together, the police were asked whether joining such groups would be considered a crime.

Chow said the criminal case was different from an ordinary discussion about the stock market as it involved high-frequency transactions at the same time and price.

Chief Superintendent Chung Wing-man of the Narcotics Bureau said the police have reasonable grounds to believe that the case was not an ordinary speculation activity but rather the group intended to push the trade volume to distort the market situation and attract "innocent" members of the public to invest in the same stock. Police have received complaints from investors about losses in their stock investment, with an elderly victim losing more than HK$1 million. "The current police investigation is not targeting Next Digital; instead it is targeting operations that stir up and manipulate the stock market," Chung said.

She added: "It is very likely that we may never find out because investors they have many reasons to invest in a,particular stock. But, objectively speaking, it is very likely some investors were attracted by the massive increase in trade volume, which was a false market situation presented by the culprits or arrested suspects."

Between August 10 and 12, 7.1 billion shares were traded, she said. This meant that daily turnover increased more than 4,000 times between August 7 and August 11.

Next Digital's share price increased from a low of HK$0.075 on August 10 to a high of HK$1.96 on August 1. As the investigation is still in an initial phase, police are still looking for the mastermind and more people could be arrested, Chung said.

Police did not comment on whether any members of Next Digital are involved in the case. Cases involving false trading would usually be investigated by the SFC under the Securities and Futures Ordinance. This sparked speculation about why it was the police taking action against the group for market manipulation, particularly if the money they used was from suspicious sources.

Solicitor Kevin Yam Kin-fung, founder of the Progressive Lawyers' Group, said the police action was confusing as it may alert others not in custody.

Yam said the SFC has more power to investigate such case than police, adding that the police's high-profile arrests could only "wake a sleeping dog."

The founder and chairman of the Hong Kong Institute of Investors, Ricky Tam Siu-hing, said whether people have manipulated the stock price depends on their intentions.

"It's legal if people buy shares together because they believe in a bank and think they could earn money," Tam said. "But if a person buys a share in the morning and sells it immediately in the afternoon, with an intention to create a false market then he is manipulating the price instead of investing. "

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