(Yicai Global) Feb. 9 -- Police in China have started investigating Heyu Holdings and Fushu Holdings, two margin financing firms, on suspicion of manipulating stock prices, an insider close to the authorities told Yicai Global.

The two Hangzhou-based firms may have influenced the stock prices of companies such as Guocheng Mining, a miner and trader of non-ferrous metal mineral products, and Risen Energy, a solar panel maker, the person said in an interview.

Toward the end of last September, Guocheng Mining [SHE: 000688], whose shares had been on an upward trajectory, slid to about CNY11 (USD1.71) from CNY24 (USD3.73) over the space of a month. Meanwhile, Risen Energy [SHE: 300118] more than tripled in value in one month at the end of last year even though the company had not disclosed any major business developments.

Founded in 2016, Heyu Holdings has CNY50 million (USD7.8 million) in registered capital and is owned by Wu Hui and Fan Zenan, who each have half equity, according to public information. Fushu Holdings, which was set up in 2018, also has registered capital of CNY50 million. Its legal representative, Chen Jun, has a 55 percent stake and Wei Ronghui owns the rest.

Chinese regulators have been strengthening oversight of suspicious stock price fluctuations lately to warn off speculators as capital is shifting to the virtual and financial sectors from the real economy, according to veteran market participants. 

“This round of crackdowns shows regulators are becoming increasingly sensitive to abnormal share price movements and authorities are taking a more serious attitude to violations,” an investment manager at a private equity firm told Yicai Global. 

No Going Back to 2015

Regulators acted this time when Chinese mainland share valuations were not yet very elevated, according to one seasoned market participant. To ensure a steady development, they probably wanted to avoid a repeat of what happened in 2015, the person added.

In mid-2015, mainland stock markets plunged quickly and unexpectedly due to large inflows of borrowed money.

Yicai Global reported two stock price manipulation cases this month and in December. “Both Li and Liu [the suspects in these earlier cases] may have a connection to margin financing companies like Heyu and Fushu,” said the source close to the authorities.

Police in Shanghai, Shenzhen, Qingdao, Jinhua, Ningbo, and other Chinese cities recently have solved multiple major cases involving stock price manipulators and firms that provide support to the illegal activities, Yicai Global has learned. 

Authorities in Zhejiang province cracked a case worth over CNY10 billion (USD1.6 billion) involving more than 40 employees at a margin financing firm, the same insider added.

Stock exchanges are responsible for monitoring price movements and should report irregularities to securities regulators while law enforcement assesses the evidence.

Editors: Chen Juan, Emmi Laine