Mergers and acquisitions are the "hardest hit area", take a heavy hit! Multiple penalties for insider trading
Insider trading, as a key regulatory focus, has always received market attention.
Recently, multiple securities regulatory bureaus in Beijing, Zhejiang, Hunan and other regions have issued multiple fines for insider trading, fully demonstrating the determination and attitude of regulatory authorities to "zero tolerance" for securities illegal activities such as market manipulation and insider trading.
From recent cases, mergers and acquisitions are still a major area of illegal and irregular insider trading. Analysts point out that mergers and acquisitions have complex factors such as a long time span and a large number of personnel involved. In this field, there is a high incidence of cases, and there are more cases of collusion and collusion. The phenomenon of using accounts for insider trading is more common.
Zhejiang Securities Regulatory Bureau issued two consecutive fines
On September 12th, the Zhejiang Securities Regulatory Bureau issued two fines for insider trading.
The administrative penalty decision released by the Zhejiang Securities Regulatory Bureau shows that Liu Yulan was fined 1.4742 million yuan for insider trading of Kanglongda stocks.
The administrative penalty decision provides a detailed explanation of Liu Yulan's illegal activities. In October 2021, after Kanglongda acquired 33.33% equity of Jiangxi Tiancheng Lithium Industry Co., Ltd., Zhang Moufang, Chairman and General Manager of Kanglongda, sought to control Tiancheng Lithium Industry and achieve industrial transformation and upgrading of the company. On January 1, 2022, Zhang sent a WeChat message to the CFO of the company, Chen Mouli, requesting her to confirm the review process and financial advisory matters for the acquisition of Tiancheng Lithium's equity. After the market on March 21, 2022, Kanglongda disclosed the announcement on its plan to acquire some equity of the participating company and sign the acquisition framework agreement. The acquisition of the equity of Tiancheng Lithium by Kanglongda is a significant event under Article 80, Paragraph 2, Item 2 of the Securities Law, and prior to its disclosure, it was classified as insider information under Article 52, Paragraph 2 of the Securities Law.
During the sensitive period of insider information, Liu Yulan purchased approximately 135000 shares of Kanglongda through her own and her son's account, with a transaction amount of 5.2697 million yuan, and subsequently sold 60000 shares. As of March 21, 2022, the account group held a total of 102100 shares of Kanglongda. As of October 27, 2022, the total profit of the account group was 737100 yuan.
The Zhejiang Securities Regulatory Bureau believes that Liu Yulan has a close relationship with insider information insider Zhang Moufang. During the sensitive period of insider information, her securities trading activities were basically consistent with the insider information, and her trading behavior was clearly abnormal. She could not provide reasonable explanations or evidence to exclude her use of insider information to engage in related securities trading activities. Liu Yulan's above-mentioned behavior violates the provisions of Article 50 and Article 53, Paragraph 1 of the Securities Law, and constitutes insider trading behavior as described in Article 191, Paragraph 1 of the Securities Law.
Finally, the Zhejiang Securities Regulatory Bureau decided to order Liu Yulan to handle the illegally held securities in accordance with the law, confiscate the illegal gains of 737100 yuan, and impose a fine of 737100 yuan.
Liu Guohai, former deputy general manager of Kanglongda, was also fined for insider trading. According to the administrative penalty decision released by the Zhejiang Securities Regulatory Bureau, Liu Guohai was fined 500000 yuan for insider trading of Kanglongda and 300000 yuan for short-term trading.
It is reported that after Kanglongda invested in Jiangxi Tiancheng Lithium Industry Co., Ltd., Zhang Moufang, the chairman and general manager of Kanglongda, entrusted someone to inquire about the mineral situation in various regions, seeking to connect the upstream and downstream of lithium salt processing and achieve the integration of mineral resources and processing. On April 8, 2022, Zhang Moufang had preliminary discussions with Hu Mouxia, the executive partner of Tai'an Xinchang Lithium Mine Investment Center, in Tai'an, Shandong. Zhang mainly learned about Tai'an Xinchang's holding of the African Mali mine underwriting rights and other information. On the morning of May 27, 2022, at 10 o'clock, the company held a management meeting, attended by Zhang Moufang, then director and deputy general manager of Kanglongda, Liu Guohai, and others. On June 24, 2022, after market hours, Kanglongda disclosed the announcement on acquiring 100% of the property share of Tai'an Xinchang Lithium Mine Investment Center. The acquisition of Taian Xinchang property shares by Kanglongda is a significant event as stipulated in Article 80, Paragraph 2, Item 2 of the Securities Law, and prior to its disclosure, it was classified as insider information as stipulated in Article 52, Paragraph 2 of the Securities Law. The sensitive period for insider information is from May 22, 2022 to June 24, 2022.
Liu Guohai, as an insider, traded "Kanglongda" during the sensitive period of insider information, and he cannot provide reasonable explanations or evidence to exclude the use of insider information for trading. Liu Guohai's above-mentioned behavior violates the provisions of Article 50 and Article 53, Paragraph 1 of the Securities Law, and constitutes insider trading behavior as described in Article 191, Paragraph 1 of the Securities Law.
At the same time, Liu Guohai, as the then director and deputy general manager of Kanglongda, actually controlled the use of the "Jia Moufeng" account to trade "Kanglongda", and engaged in selling within six months after buying or buying within six months after selling, which violated the provisions of Article 44 of the Securities Law and constituted the short-term trading behavior described in Article 189 of the Securities Law.
The Zhejiang Securities Regulatory Bureau has decided to impose a fine of 500000 yuan on Liu Guohai's insider trading behavior; Warn Liu Guohai of his short-term trading behavior and impose a fine of 300000 yuan.
Multiple insider trading punished
In addition to the Zhejiang Securities Regulatory Bureau, the Beijing Securities Regulatory Bureau and the Hunan Securities Regulatory Bureau have also released the latest fines, and all relevant personnel have been fined for insider trading.
The administrative penalty decision released by the Beijing Securities Regulatory Bureau shows that Zheng Yuewu was fined 9.5184 million yuan for insider trading of shares with the same party.
It is reported that on February 3, 2017, Huang, the general manager of Tongfang Group, proposed to Wu, the president of Korui Tiancheng Investment Holdings Co., Ltd., that Tongfang Group intends to acquire the equity of Shanghai Laishi Blood Products Co., Ltd. held by Korui Tiancheng. Before February 20, 2017, Wu and Huang held multiple talks on this matter and determined the preliminary plan for the share exchange for this restructuring. On February 20, 2017, Chairman Zhou, Huang, and Deputy Secretary of the Party Committee Zhang of Tongfang Group held a core group meeting, during which Huang proposed that Tongfang Group intends to acquire the equity of Shanghai Laishi through a share exchange. On July 19, 2017, Tongfang Shares signed an intention agreement with Korui Tiancheng and Laishi China to issue shares and purchase equity of Shanghai Laishi Blood Products Co., Ltd. through cash payment. On September 15, 2017, Tongfang Shares issued a notice on the termination of major asset restructuring, announcing the termination of this major asset restructuring.
Tongfang Shares obtained 29.9% equity of Shanghai Laishi through issuing shares and paying cash to its major shareholder, Korui Tiancheng, and its second largest shareholder, Laishi China. This falls under the category of major asset restructuring of listed companies as stipulated in Article 12 of the Measures for the Administration of Major Asset Restructuring of Listed Companies. Prior to public disclosure, it falls under the category of "major investment behavior and major property purchase decisions of the company" as stipulated in Article 67 (2) (2) (2) of the Securities Law of 2005, and constitutes insider information in accordance with Article 75 (2) (1) of the Securities Law of 2005. The insider information was formed on February 3, 2017 and made public on June 20, 2017.
According to the administrative penalty decision, Zheng Yuewu is the younger brother of Zheng Mouwen, the insider of this case, and the two have a close relationship. During the sensitive period of insider information, from February to March 2017, Zheng Yuewu had multiple phone calls with insider Zheng Mouwen. During the sensitive period of insider information, Zheng Yuewu's personal account had characteristics such as first-time trading of the involved stocks, sudden transfer of large amounts of funds, and sudden concentration of buying of the involved stocks; There are characteristics of the first trading of the involved stocks in a certain Yan account, sudden transfer of large amounts of funds, sudden concentration of buying of the involved stocks, and leveraged trading. The above transactions are highly consistent with insider information, with a strong willingness to buy and obvious abnormal trading behavior. Zheng Yuewu has no legitimate source of information or reasonable explanation for this.
The Beijing Securities Regulatory Bureau has decided to confiscate Zheng Yuewu's illegal gains of 2.3796 million yuan and impose a fine of 7.1388 million yuan.
The Hunan Securities Regulatory Bureau also issued a fine for an insider trading case. It is reported that during the sensitive period of insider information, on February 25, 2022, Zhang Qingmin and Liu Mouqiu attended a gathering in Changsha, where the two of them exchanged WeChat messages with Xiang Moujun. Zhang Qingmin and Liu Mouqiu had a meeting with Xiang Moujun and others at the office building of Quyuan Management Committee on March 25, 2022, and had lunch together. Zhang Qingmin and Liu Mouqiu have close contact, and the two have made at least 50 phone calls during the sensitive period of insider information, and have met.
The Hunan Securities Regulatory Bureau believes that from the aspects of account use, fund transfer, securities trading, etc., the transactions in the involved account are clearly abnormal, and the changes in funds and the development and disclosure process of securities trading and insider information are highly consistent. The Hunan Securities Regulatory Bureau has decided to confiscate Zhang Qingmin's illegal gains of 634100 yuan and impose a fine of 1.9023 million yuan, totaling 2.5365 million yuan.
Improve the confidentiality and compliance management of insider information
The orderly and fair competition in the securities market depends on the maintenance of the basic principles of openness, fairness, and impartiality in the operation of the securities market. Insider trading behavior undermines the basic principles of openness, fairness, and impartiality in the market, promotes speculation, disrupts the order of the securities market, and seriously damages the legitimate rights and interests of investors.
In recent years, regulatory authorities have maintained a "zero tolerance" attitude towards securities illegal activities such as insider trading. However, the market habit of "profiting from stock trading through internal information" has not been eradicated, and major events such as mergers and acquisitions and changes in actual controllers are still high incidence areas for insider trading. According to the case handling notice previously released by the China Securities Regulatory Commission, the commission has severely cracked down on various illegal behaviors in securities and futures. In 2022, 603 cases were handled, including 170 cases of insider trading.
The capital market is an information and confidence market, and improving the confidentiality and compliance management of insider information is an important manifestation of boosting investor confidence. However, insider trading cases have exposed that the lack of confidentiality management of corporate insider information can lead to the risk of insider information leakage, trigger insider trading, disrupt the order of the securities market, and infringe on the legitimate rights and interests of investors.
According to a report from the China Securities Regulatory Commission, in some insider trading cases last year, the amount involved was relatively large. Some listed companies use multiple accounts of others to carry out insider trading, with a transaction amount of hundreds of millions of yuan. Some individuals involved in the case had close contact with insiders and bought related stocks for nearly 100 million yuan before the information was released. From the perspective of the involved parties, insiders still account for 40% of direct transactions. Some directors of listed companies purchase relevant stocks after learning that the company is planning a major restructuring, and sell them for profit after information disclosure. Some executives of listed company subsidiaries are aware that the company will make significant investments and use their own and spouse's accounts for insider trading profits. From the perspective of trading behavior, insider trading "nest cases" and loss avoidance trading often occur. Some executives of state-owned enterprises take advantage of their positions to repeatedly probe major information of listed companies and collude with others for insider trading. Some executives of listed companies sell stocks to avoid losses before the company discloses significant pre loss information or the actual controller is subject to criminal enforcement measures.
The China Securities Regulatory Commission stated that it will adhere to the "zero tolerance" work policy, strictly crack down on various securities and futures illegal activities in accordance with the law, increase the cost of illegal activities, strengthen law enforcement deterrence, protect the legitimate rights and interests of investors, and maintain the healthy and stable development of the capital market.
