Three men have been arrested on charges of insider trading in the shares of a Chinese construction company, the Xinhua news agency reported Wednesday.
Luo Gaofeng, investor relations officer for Zhejiang Hangxiao Steel Structure, is accused of releasing price-sensitive information, and Wang Xiangdong and Chen Yuxing of trading on the information, said Xinhua.
The high-profile investigation into the dramatic movements in Hangxiao’s share price this year following the disclosure of a large contract in Angola has become an important test of the authorities’ willingness to pursue allegations of illegal trading in the current bull market.
The arrests came as the stock market showed further signs of returning to the highly speculative conditions of last month that generated concerns in the government about a bubble.
Shares in the mainland markets rose 2.6 per cent Wednesday in heavy trading to 4,176 points, only 4 per cent below the level in late May when the government was forced to raise a tax on share trading to try and reduce the speculation. Turnover in the Shanghai market for A shares – the main class of mainland shares – reached Rmb217bn ($28.4bn), not far from the peak of Rmb250bn seen at the end of last month.
Investigations into Hangxiao began in April following unusually volatile trading in its shares, which rose fivefold at one stage. The company, which was relatively unknown, announced in March that it had won a Rmb31.3bn contract to build houses in Angola, a figure which was 20 times the company’s 2005 turnover.
In May, the China Securities Regulatory Commission fined the company and five senior managers, including Mr Luo, for the way the disclosure of the contract was handled.
The regulator said details of the Angola deal had been leaked to some investors in February. The CSRC passed its investigation file to the police, which led to Wednesday’s arrests.
News of the arrests was only released on Xinhua Wednesday evening. No-one at Hangxiao was available to comment on the report.
Li Jian, a Hangzhou lawyer, said he was representing 10 investors in litigation against the company over the way the information was disclosed and the allegations of insider trading.