(Yicai Global) March 16 -- China Securities Regulatory Commission (CSRC) this week fined transportation company Beibadao Logistics Group Ltd. CNY5.7 billion (USD900 million) for manipulating stock prices through the use of more than 300 accounts. The fine constituted the largest fine the commission has ever issued.

Lin Qingfeng, founder of Xiamen-based Beibadao, started out in logistics, public information shows. He was once the controller of China's biggest private rail container operator, accruing substantial personal wealth and even owning private yachts. Since quietly entering the capital market in 2012, Beibadao has been engaged in financial businesses and conducted irregular transactions through a platform it set up in the Shanghai Free Trade Zone.

Several billion yuan raised to manipulate prices of newly listed stocks

This week, the CSRC handed out its largest fine ever in the biggest stock manipulation case it has handled thus far. 

Share prices of Jiangsu Zhangjiagang Rural Commercial Bank Co. [SHE:002839] and Jiangsu Jiangyin Rural Commercial Bank Co. [SHE:002807] experienced short-term abnormal volatility in February, attracting market attention. Stock-market monitoring tools found highly suspicious operations by multiple groups and related accounts, and they were allegedly manipulating the market, investigators from the CSRC said.

Investigators found that between February and May last year, Beibadao and its actual controller formed a team of traders with clear division of labor, raising several billion yuan through a number of intermediary companies, which sold and bought stocks via more than 300 stock accounts through the use of abnormal transaction methods such as frequent trading, pushing up share prices in intraday trading and quickly making shares rise to their daily limit up.

Take JZRCB, which listed on the Shenzhen Stock Exchange's SME Board, a marketplace for small- and medium-sized enterprises, on Jan. 24, 2017, as an example. Though its initial offering price was only CNY4.37, its stock price rose to as high as CNY30.51 in intraday trading on April 5, 2017, almost seven times its IPO price in less than three months.

To manipulate stock prices, Beibadao used the accounts of many of its employees and related personnel to spread its funds to conduct irregular transactions, Yicai Global learned.

"We once investigated a villa involved in the case. The villa covers an area of about 1,000 square meters. It was empty then. But we later learned that there were more than 100 computers and over 10 traders trading at the same time at the height of the country's stock manipulation efforts," investigators with knowledge of the case told Yicai Global, adding that Beibadao, Lin and his daughter refused to cooperate after the incident was exposed.

During the investigation, executives and related Beibadao personnel involved in the case refused to cooperate and used various methods to avoid investigation. The investigators tried many times to contact Lin, the actual controller of Beibadao, and but such requests were all rejected. Lin Yuting, daughter of Lin Qingfeng, once met with investigators, but refused to cooperate, investigators said. The company's finance and accounting personnel dodged investigations by saying that their parents were hospitalized or their children were sick and even refused to talk. When the company's financial office was examined, some finance staff had physical conflicts with and hurt investigators as they were fought to grab and destroy relevant financial materials.

Beibadao bagged a total of CNY945 million in illegal gains in two months by manipulating the stock prices of JZRCB (CNY139 million), JJRCB (CNY340 million) and Guangdong Hoshion Industrial Aluminium Co. [SHE:002824] (CNY467 million) using several billion yuan.

Starting out in logistics before setting up a platform in the free trade zone

There is little information about Beibadao founder Lin Qingfeng on the internet. According to the 2014 MGM-Hurun China yacht industry report issued by the Hurun Institute, Lin owned a private custom yacht, called the Ferretti 800, worth about CNY36 million at the time, ranking 13th on the list.

Lin started out with logistics and transportation. Beibadao Logistics Group Ltd. which he controls, once the largest private rail container operator in China. In the 1990s, Lin built his business by offering aggressive transportation services, thus building up a fortune. Reports said that in 2014, Beibadao had nearly CNY3 billion in fixed assets, owned 23 container freight stations, and had branches in nine provinces and municipalities across China, with over 30,000 20-foot self-owned international containers going between stations.

He Xue is currently Beibadao's legal representative, and the firm has registered capital of CNY50 million, information from industry and commerce agencies shows. The company recently change legal representative, with He replacing Lin Huihui. However, the actual relationship between Lin Huihui and Lin Qingfeng has not been publicly disclosed. Lin Qingfeng's daughter is Lin Yuting, who currently serves as a supervisor at Beibadao, Yicai Global learned.

Beibadao (Xiamen) has invested in seven subsidiaries, which have complicated relations between them. In addition to logistics companies in Shanghai, Putian and Xinjiang, Beibadao affiliates controlled by Lin Qingfeng have been heavily engaged in commercial factoring, financial leasing, and investment and financing through the use of a platform set up in the Shanghai Free Trade Zone starting from 2012 to 2013. Beibadao was established during that period.

Founded in April 2013, Beibadao was formerly known as Beibadao Investment Holding Co., and was mainly engaged in industrial investment and investment advisory. Lin Qingfeng and his daughter Lin Yuting were investors in the prior to September 2014.

Beibadao has several businesses in Shanghai, public information shows. In addition to some 10 companies large and small, Beibadao won land use rights for an 11,500-square-meter plot of land for industrial warehousing in the Shanghai FTZ for CNY96.5 million in November 2013, the first such land-use right auction in the FTZ. The Beibadao Building is also located near the FTZ.

In September 2012, Beibadao set up a joint venture, Xintai Financial Leasing Co., with Hong Kong-based Song'en Group, and formed another JV, Xintai Commercial Factoring Co. in November 2013, with CNY50 million registered capital and CNY30 million, respectively. Lin Yuzhi is the legal representative of both firms. Though both of them are affiliated to Beibadao, information shows that there exist some 10 Beibadao affiliates in Shanghai under its control.

Beibadao, Xintai Financial Leasing and Xintai Commercial Factoring have the same registered address, No. 161, Lujiazui East Road, Pudong New District, Shanghai. That address is also the registered home of Shanghai Yuanzhihu Industrial Co., a major shareholder of Beibadao, information from industry and commerce agencies shows.

Though Beibadao has been buying buildings and land in Shanghai and is heavily engaged in investment and financing, it was little-known in the stock market and had few public collaboration projects with listed companies. Xiamen Xiangyu Co. [SHA:600057], a Xiamen-based logistics firm listed on the A-share market, set up a JV, Xiamen Xiangdao Logistics Co., with Beibadao last July, with the latter holding a 60 percent stake, public information shows. However, Beibadao sold its equity to Xiamen Wudian Logistics Co. just one month after its establishment. At that time, Lin Qingfeng and his daughter and Beibadao were already dodging investigations from the CSRC.

Notably, Beibadao sought to recruit financial personnel online late last year, requiring candidates capable of effectively organizing financial department work and daily tasks, monitoring major economic activities that may cause economic losses to the company, holding a certified public accountant certificate and four to five years of management experience in the accounting and auditing field, as well as being familiar with the relevant processes.