CSRC Fines Qtone Controllers for Insider Trading That Cost Them USD3.1 Million
Mu Qing
DATE:  Aug 21 2017
/ SOURCE:  Yicai
CSRC Fines Qtone Controllers for Insider Trading That Cost Them USD3.1 Million CSRC Fines Qtone Controllers for Insider Trading That Cost Them USD3.1 Million

(Yicai Global) Aug. 21 -- The Guangdong provincial branch of the China Securities Regulatory Commission has completed its insider trading investigation into the actual controllers of Chinese online education services company Qtone Education Group Guangdong Ltd. [SHE:300359].

The probe found that Chen Chichang and Lin Xiaoya, the husband-and-wife co-founders of the firm, violated the law by concealing their entrusted holdings when selling shares. The regulator issued the pair a warning and fined them CNY600,000 (USD90,000).

Chen transferred 11 million Qtone shares, making up 1.74 percent of the company's total, to a person surnamed Xu for CNY180 million through bulk trading in February 2017. Xu's account was actually controlled by the couple, who provided the funds to buy the shares, the CSRC said on Aug.18.

However, the secretive reduction in stock failed to produce a profit for the couple.

Some 7.35 million of the shares were sold for around CNY4 million less than they were transferred for in the first quarter of this year, leaving at least 3.65 million shares unsold so far, Yicai Global found. The accumulated loss could be over CNY21 million (USD3.1 million).

"The use of entrusted shareholding for reduction can avoid price fluctuations in the secondary market and help major shareholders 'ship out' their holdings, and they can sell them at a higher price at the right time," a representative of a large securities trader and investment bank told Yicai Global.

"This approach is a kind of 'bridge reduction,' but the receiver was always a bulk trader in the past. It is rare for shareholders to do such operations all by themselves."

Before stock selling limits were introduced, bridge reductions or entrusted shareholding through bulk trading was a common way for major shareholders to cut holdings, and the regulator has no specific provision for this, a source engaged in private placement said. However, the Qtone founders reduced and entrusted their holdings through accounts under their control. It remains to be discussed and defined whether or not such practice will be compliant with regulations in the future.

"From the probe's decision, the couple was punished mainly for concealing entrusted shareholding. The problem was information disclosure not shareholding entrustment," the source added.

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Keywords:   Qtone Education,CSRC