(Yicai) Sept. 8 -- Shares of Olo Home Furnishings continued to fall after the Chinese custom furniture maker said the investor who breached the Shanghai Stock Exchange’s divestment disclosure rules will be forced to buy back all the shares he illegally sold.

Olo [SHA: 603326] was trading down 3.7 percent at CNY13.98 (USD1.90) as of today’s lunch break, after plunging by the 10 percent exchange-imposed daily limit yesterday.

Shareholder Yu Fanyi expressed his sincere apologies for what happened and promised to buy back all the shares it sold illegally as soon as possible, the Nanjing-based company said yesterday in response to a regulatory letter from the SSE.

Yu quietly sold almost all of his equity in Olo over the last three months without making a public announcement, the firm said on Sept. 6. That enabled him to profit from a surge in real estate stocks after China recently took steps to buoy the housing market.

According to yesterday’s announcement, Yu, who is Olo’s third-largest shareholder, and persons acting in concern sold 22.4 million shares, equal to 7.1 percent of the company’s total shares, on Sept. 5 and 6, failing to disclose the transaction according to the bourse’s rules.

Shareholders holding more than 5 percent of a company’s equity must publicly disclose if they make any changes to their shareholding that exceeds 5 percent, according to the SSE rules. Investors cannot buy or sell shares within three days of the announcement.

When Yu and the persons acting in concern raised their stake in Olo to 5 percent in 2021, they received a warning letter from the Jiangsu province branch of the China Securities Regulatory Commission for failing to disclose the trade in time.

Ordinary violations of reduction rules are generally not investigated, but this case may be more serious. But judging from Olo’s stock reaction to the share sale, Yu may be suspected of market manipulation or insider trading, said Xu Feng, director of Shanghai Jiucheng Law Firm.

Recently, other companies also found themselves in similar situations. For example, the SSE warned the controlling shareholder of Eastern Pioneer for insisting on illegally reducing its holding of the firm’s shares when the stock price fell on its first trading day.

Yicai believes that regulatory authorities will strengthen supervision over the inadequate implementation of reduction rules.

Editor: Futura Costaglione