China’s ‘Hedge Fund Brother No.1’ Admits Stock Manipulation (1)

(Bloomberg) -- Former hedge fund manager Xu Xiang pleaded guilty to charges of market manipulation in one of the most high-profile cases to follow last year’s stock market collapse in China.

Xu, known as “hedge fund brother No. 1” for his winning bets in the stock market, was charged with colluding to manipulate share prices in an operation that began in 2009 and ran through 2015, a court in the eastern city of Qingdao said on its official Weibo account.

Two other defendants -- fund manager Wang Wei and Zhu Yong -- also pleaded guilty, the statement said. The court will announce sentences at a later date. Caixin previously reported that Zhu was a fund manager.

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

Block Trades

Xu made trades to manipulate prices and trading volumes after buying low from executives through block trades or ahead of news announcements or via private placements, the court said.

Xu’s Zexi Investment Management Co. ran four of the country’s top ten performing hedge funds between June and August last year, the period of the share market collapse, according to the independent ratings company Shenzhen Rongzhi Investment Consultant Co. Zexi’s five funds returned an average 249 percent in the first nine months of last 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 these firms.

His arrest was part of a wider probe into the causes of the crash, which wiped about $5 trillion off the value of Chinese equities. The government launched a support operation for local markets, suspended trading in many listed companies, and cracked down on short-selling in an effort to reverse the market drop.

Before the crash, Xu had a reputation as one of the country’s top fund managers. One of Zexi’s five funds were ranked among the top three in China by returns in every year since the firm was founded in 2009, according to the Economic Daily newspaper’s website.

(Updates with details of market manipulation in fourth paragraph.)

To contact Bloomberg News staff for this story: Jun Luo in Shanghai at jluo6@bloomberg.net. To contact the editors responsible for this story: Marcus Wright at mwright115@bloomberg.net, Paul Panckhurst, Sree Vidya Bhaktavatsalam

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