China Gives ‘Hedge Fund Brother No.1’ 5 1/2 Years in Prison (2)

(Bloomberg) -- China sentenced former hedge fund manager Xu Xiang to five-and-a-half years imprisonment for market manipulation, in one of the most high-profile cases following the 2015 market rout, a court in the eastern city of Qingdao said in its official Weibo account.

Xu, known as “hedge fund brother No. 1” for his winning record in the stock market, was charged with colluding to manipulate share prices in an operation from 2010 to 2015, the court said in a statement Monday. Wang Wei, another defendant that Xu collaborated with, was sentenced to three years in jail while Zhu Yong, a third, was given two years with a three-year reprieve on the same charges.

The three executives were fined, and their illegal profits entirely or partly confiscated, the court said, without providing details. The court fined the three a combined 12.05 billion yuan ($1.76 billion), the largest ever in China for individual economic crimes, with 11 billion yuan of it imposed on Xu alone, Caixin reported, citing unidentified people familiar with the matter. The three used an accumulated 40 billion yuan to manipulate the shares and illegally pocketed about 7 billion yuan, according to Caixin.

Between 2010 and 2015, Xu -- either alone or with Wang and Zhu -- colluded with the chairmen or the “actual controlling shareholders” of 13 listed companies to trade on insider information on topics such as dividends, according to the statement. Xu controlled almost 100 trading accounts opened by his relatives, employees and employees’ relatives, the court said last year. The executives and owners have been charged separately.

Illicit Gains

The money involved and illicit gains from their manipulation was “especially huge, and the circumstances specially serious,” the court said without disclosing the amounts. They won’t appeal their sentences, according to the court.

Xu’s Zexi Investment Management Co. ran four of the country’s top ten performing hedge funds between June and August in 2015, the period of the share market collapse, according to independent ratings company Shenzhen Rongzhi Investment Consultant Co. Zexi’s five funds returned an average 249 percent in the first nine months of that year, when the Shanghai Composite Index fell 6 percent, Shenzhen Rongzhi said.

Xu was detained by police in November 2015 on the highway between Shanghai and Ningbo, in an arrest that was captured in photographs and widely circulated on social media. Police later froze over $1 billion of shares in listed companies with connections to Xu’s investments, according to exchange filings by those firms.

Xu, born in 1976, started investing at high school in the eastern city of Ningbo, according to the official People’s Daily. Skipping university, he instead became a professional investor, accumulating over 4 billion yuan in personal wealth and managing tens of billions of yuan, the People’s Daily reported in 2015.

(Updates with reported size of fines in third paragraph.)

To contact Bloomberg News staff for this story: Zhang Dingmin in Beijing at dzhang14@bloomberg.net. To contact the editors responsible for this story: Sree Vidya Bhaktavatsalam at sbhaktavatsa@bloomberg.net, Robert Olsen

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