How they manipulate the stock market in China Employees of Chinese brokerages, fund managers, and company executives are among those engaged in illicit activities, ranging from
falsifying numbers on listing prospectuses to insider trading, the industry sources said.
These disclosures about how the markets are being manipulated follow a Reuters investigation into accounting fraud at Chinese companies listed in North American exchanges.
FALSE IPO DATAOne of the most common of the illegal stock trading practices is including false figures for revenue and other data on IPO prospectuses, said one senior manager with a brokerage firm based in eastern China.
"It's just a bunch of bosses meeting up and filling in the forms. 'What kind of price do you want? We'll get you that price,'" said the source, who asked not to be identified for fear of repercussions.
"Often it's because someone's kid is doing a certain business, so if I help him with an IPO now, he might help me with something else down the road."
Another practice involves collusion between company executives and major institutional investors. They get together
ahead of a planned secondary share offering, and agree to ensure the company's share price performs well enough to attract demand for the offering.
The investors then
dump the shares after the offering when the share price has reached a high enough level. Along the way, commentators help talk up the stock among retail investors amid
well-timed releases of positive news on the company, said another industry source, again on condition of anonymity.
"We'll set it up for them. Everyone will get together in a room and
work out a schedule," the source said. "We'll know when the stock will reach a certain point, and set a target for when those involved will aim to get out."
The
misuse of private trading accounts by mutual fund managers is a practice, which like that of "black mouths," is common enough to have been given a colorful nickname in Chinese: "rat trading."
The rats are fund managers who
buy securities in their own personal trading account ahead of large purchases of the same security by their fund house, hoping to profit from a rise in the share price from their firm's larger transactions.
The CSRC has been especially cracking down on this practice because it is holding back the development of the mutual fund industry. In one illustrative case, the regulator meted out punishment to
Huang Lin, former money manager at Franklin Templeton Sealand Fund Management Co in Shanghai.
"You have some pretty
creative accounting techniques that Chinese companies often use," said Kent Kedl, managing director of Greater China and North Asia with consultancy Control Risks.
"Some will have
one set of books internally, one set of books for the tax authorities, and another one to potentially show investors. It's a pretty common thing."
"You really need to
do your own due diligence," she said. "Not only talking to the companies, but going to
talk to their competitors, their enemies, their suppliers -- the people who conduct business with them," she said. "That's really the very reliable source."
"Once you log in, you're getting screen shots of your desktop every three or seven seconds. But what's the reality? Everybody's got three mobile phones because their line is recorded, so they use their mobile phones. And it happens a lot."
The problem is part of a much larger China syndrome. Whether it's food safety or rampant counterfeiting,
those who want to cheat or cut corners will usually find a way around any restrictions, because enforcement resources are so woefully inadequate.
Many retail investors shrug off the inherent disadvantage they face, with so many insiders privy to so much information that they are not. That includes the
chronic leaking of important economic data, prompting the statistics agency to crack down on the practice this year.
Source: Reuters US Online Report Top News
http://www.newsmeat.com/news/meat.php?a ... &buid=3281
It's all about "how much you made when you were right" & "how little you lost when you were wrong"