The China Securities Regulatory Commission (CSRC) has recently been issuing penalties for market manipulation and insider trading cases, considering the essence of market manipulation to be "fraud" and the essence of insider trading to be "theft", and it will crack down on these activities severely.

After two years of controlling 113 securities accounts with a transaction amount of 80 billion yuan... this is the situation of the controlling shareholder of Meishang Ecology (now *ST Meishang) colluding with private equity to manipulate their own stock. However, the result of the aforementioned transactions was that after deducting commissions and related taxes, the account group ended up with a loss of 238 million yuan.

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Recently, the responsible persons related to this case have been administratively punished by the CSRC for suspected manipulation of the securities market.

After the Dragon Year Spring Festival, the capital market has been sending out strong signals of strict regulation.

On February 22, the CSRC posted six penalties at once, involving illegal activities such as insider trading and market manipulation. Eleven responsible persons were administratively punished, with the highest penalty being 83.4 million yuan, and the total penalty exceeding 120 million yuan.

Recently, Li Ming, the Chief Prosecutor and Director of the Inspection Bureau of the CSRC, stated that market manipulation artificially distorts stock prices, causing sharp rises and falls in stock prices, misleading investors' trading decisions. After profiting and leaving, it leaves a "mess", causing heavy losses to investors. The essence of it is "fraud"; in insider trading, a few people have insider information, trade ahead of time, and have more opportunities to profit, trying to make huge profits "without being noticed", and the essence of it is "theft".

In response to questions from reporters, the CSRC stated that the next step will be to guide the Shanghai and Shenzhen Stock Exchanges and the China Financial Futures Exchange to improve the standards for abnormal trading supervision, and to crack down on illegal activities such as market manipulation and insider trading according to laws and regulations, to effectively maintain the normal trading order of the market.

In the past, the CSRC's penalties were mostly targeted at institutions, but since this year, the CSRC has increased the penalties for individuals involved in cases.

In this penalty case, 5 people were punished for insider trading in Hengyi Petrochemical, and 6 people were punished for manipulating the securities market, involving listed companies such as Meishang Ecology and Lidemann. Among them, there are controlling shareholders who manipulate their own stocks and still lose money, and there are investors who manipulate 11 stocks and are "confiscated and fined three times"."For general market manipulation cases, the regulatory authorities basically adopt a 'no one penalty one' approach. The 'no one penalty three' punishment is considered to be a relatively severe penalty among similar cases," a market insider told Caijing.

In response to market manipulation and insider trading behaviors, the China Securities Regulatory Commission (CSRC) recently stated that it will construct a "penetrating" clue screening system through multi-dimensional technical means such as comprehensive monitoring, big data collision, multi-channel collection, and intelligent analysis to accurately identify and severely crack down on these behaviors.

Trading 80 billion yuan but ending up at a loss

In the market manipulation penalty, the most eye-catching case is undoubtedly the one where Wang Yingyan, the controlling shareholder of Meishang Ecology and the then-chairman, and the private equity firm, jointly manipulated their own stocks.

According to the "Administrative Penalty Decision" disclosed by the CSRC, from June 12, 2018, to July 3, 2020, Wang Yingyan and Ji Yun, the then-legal representative of Shanghai Yongshu Asset Management Co., Ltd., actually controlled 113 securities accounts such as "Mr. Wu," concentrated capital advantages, and stockholding advantages, continuously traded in Meishang Ecology, manipulated it, which also caused the stock price of Meishang Ecology to deviate from relevant indices multiple times.

During the manipulation period, the account group accumulated 3.14 billion shares, purchased for 39.98 billion yuan, sold 3.138 billion shares, and sold for 39.8 billion yuan. The proportion of the account group's trading volume in the stock market was an average of 32.18%. During the case period, the account group also carried out wash trading.

However, after a series of operations, after deducting commissions and related taxes, the account group suffered a total loss of 238 million yuan. Caijing noticed that from the entire period of stock price manipulation (from June 12, 2018, to July 3, 2020), the stock price of Meishang Ecology fell by 19.9% in total.

The CSRC believes that Wang Yingyan and Ji Yun cooperated and collaborated in the process of manipulating Meishang Ecology, and they are joint illegal subjects. Among them, Wang Yingyan is the initiator and decision-maker of the manipulation, arranged for the transaction margin, and was responsible for borrowing some accounts, playing a leading role and should bear the main responsibility. Ji Yun is the executor of the manipulation, responsible for borrowing some accounts, and should bear the secondary responsibility.

In the defense, Wang Yingyan claimed to have only entrusted Ji Yun's team to maintain the stock price and did not participate in specific securities transactions; Ji Yun claimed not to have participated in substantial frequent operations, was unclear about the specific mode and means of operation, and "only introduced some financing customers, occasionally made a few transactions." However, the defense opinions of the two were not recognized by the regulatory authorities.

According to the provisions of the "Securities Law," the CSRC decided to impose a fine of 8 million yuan on Wang Yingyan and Ji Yun, including a fine of 5 million yuan on Wang Yingyan and a fine of 3 million yuan on Ji Yun.Shanghai Jiucheng Law Firm attorney Xu Feng stated to Caijing that investors who purchased Meishang Ecology stocks during the manipulation period from June 12, 2018, to July 3, 2020, can initiate a claim for compensation.

In response to the aforementioned penalty decision, *ST Meishang stated that it only involves Wang Yingyan personally, does not involve company funds, and is unrelated to the company's daily management and business activities. It will not have a significant impact on the company's production, operation, and standardized operations.

In fact, *ST Meishang has been plagued with problems. Violations were evident during its IPO (Initial Public Offering), and the company has been administratively penalized for fraudulent issuance and illegal and regulatory violations in information disclosure.

According to the "Administrative Penalty Decision" issued by the China Securities Regulatory Commission (CSRC) in 2023, Meishang Ecology's 2015 prospectus, annual reports from 2015 to 2019, semi-annual report for 2020, report on the non-public issuance of shares and cash payment for the purchase of assets and the raising of supporting funds and related transactions in 2016, and the 2017 public offering of corporate bonds for qualified investors all contained false records in their information disclosure documents.

In terms of performance, *ST Meishang has been in continuous loss since 2020. The 2023 performance forecast indicates that the company's operations have not shown significant improvement, with an expected net loss attributable to shareholders of the listed company ranging from 440 million to 620 million yuan.

Additionally, the company has been subject to multiple risk warnings due to the controlling shareholder's occupation of funds, three consecutive years of losses, and the issuance of non-standard opinions by the auditing institution. Currently, the company is burdened with debt, facing continuous litigation, and is applying for reorganization to the court.

The CSRC has issued six penalty notices

According to the CSRC's official website, this year the CSRC has issued six penalty notices to 11 natural persons, mainly for the reasons of manipulating stock prices and insider trading.

Source of information: CSRC official website

In addition to the Meishang Ecology stock manipulation case, other natural persons subject to administrative penalties, including Miao Linghong, Shao Linping, Chen Jianping, Lu Changshui, and Zhang Weiyang, are all involved in insider trading of Hengyi Petrochemical.In 2018, Hengyi Petrochemical planned to issue shares to purchase assets. Shao Linping instructed Miao Linghong to buy Hengyi Petrochemical stocks worth about 10 million yuan before the release of insider information. The illegal proceeds from insider trading amounted to 279,500 yuan, and the China Securities Regulatory Commission (CSRC) imposed an administrative penalty of "confiscate one and fine one."

Shao Linping's cousin, Chen Jianping, borrowed 80 million yuan from him to trade Hengyi Petrochemical, but Chen Jianping's source of insider information was not consistent with Shao Linping's. Chen Jianping used a total of 128 million yuan for insider trading and ultimately suffered a loss of 18,571,700 yuan. The CSRC fined him 600,000 yuan.

The actual controller of Hengyi Petrochemical, Qiu Jianlin's relative, Lu Changshui, and Zhang Weiyang were classmates at Cheung Kong Graduate School of Business. After learning about the insider information of the aforementioned asset acquisition by Hengyi Petrochemical, Lu Changshui informed Zhang Weiyang. The two agreed that Zhang Weiyang would provide the funds, and Lu Changshui would control the accounts, trading Hengyi Petrochemical stocks worth about 104 million yuan, with illegal proceeds of 12,975,000 yuan. The CSRC imposed an "confiscate one and fine one" penalty for this.

Additionally, Zhang Shunping was "confiscate one and fine three" for manipulating the prices of 11 stocks, with a total penalty exceeding 80 million yuan. This is also the largest penalty amount for an individual's illegal and irregular case so far this year.

It is reported that from June 26, 2017, to September 29, 2017, Zhang Shunping controlled and used 27 securities accounts, including the "Han Mou Ping" Caitong Securities account, to influence the trading prices and volumes of 7 stocks, including "Vegrass," "Golden Kirin," "Kanglongda," "Tieliu Shares," "Red Dragonfly," "Riyue Shares," and "Taiping Bird," through means such as concentrating capital advantages, holding advantages, continuous trading, and false declarations.

From March 6, 2018, to April 27, 2018, Zhang Shunping again controlled and used 39 securities accounts, including the "Pang Mou" Caida Securities account, to influence the trading prices and volumes of 4 stocks, including "Qin'an Shares," "Shanghai Yahong," "Hengrun Shares," and "Zhongma Transmission," through means such as concentrating capital advantages, holding advantages, continuous trading, and securities transactions between accounts he actually controlled, as well as false declarations.

Zhang Shunping's total illegal proceeds from manipulating stock prices amounted to 20.85 million yuan, and the CSRC imposed a "confiscate one and fine three" penalty, with a total penalty exceeding 83.4 million yuan.

Tan Cunling, Chen Bin, and Dan Kai were fined for manipulating the stock price of Leadman. Among them, Tan Cunling controlled 33 securities accounts, including "Tan Cunling"; Chen Bin controlled and used 3 accounts, including "Dai Mou Feng"; Dan Kai controlled and used 3 accounts, including "Yan Mou Liang" for stock price manipulation.

The aforementioned account group held up to 52.717 million shares at its peak during the manipulation period, accounting for 12.44% of Leadman's total share capital and 16.41% of the circulating share capital. The account group ultimately suffered a loss of 38.2221 million yuan, but the CSRC still fined Tan Cunling 1.2 million yuan; Chen Bin 1.2 million yuan; and Dan Kai 600,000 yuan.

In the past, the CSRC's penalty targets were mostly institutions, but this year, the CSRC has increased the penalty intensity for individuals involved in cases. Not long ago, in the case of illegal stock trading by employees of China Merchants Securities, the CSRC imposed administrative penalties on 63 people, with a total penalty exceeding 81.73 million yuan. The total amount of fines and confiscations for Zhang Shunping's stock price manipulation case alone reached more than 83.4 million yuan.Recently, the regulatory authorities have frequently stated that they will continue to adhere to "zero tolerance" enforcement in the financial regulatory field, maintaining a regulatory approach that is "sharp and prickly." From February 18th to 19th, the China Securities Regulatory Commission (CSRC) held a series of symposiums, where attendees expressed that the CSRC's recent crackdown on financial fraud, insider trading, and other cases has had a strong deterrent effect. They suggested further increasing the punishment for various securities crimes and violations to create more exemplary cases. Market insiders anticipate that penalties for illegal and non-compliant activities in the market will become increasingly stringent in the future.