15 Arrested on Next Digital Stock Trades

Police allege 15 people defrauded and money laundered in Next Digital shares

Yesterday the Hong Kong Police publicized its arrest of 15 people on suspicion of conspiracy to defraud and money laundering by manipulating shares of Next Digital, and that they earned HK$38.7 million.

The stock price of Next Digital, the parent company that owns Apple Daily shot up for three days after its founder Jimmy Lai Chee-ying was detained by police under the national security law.

One of the 15 people arrested yesterday

Interestingly it was the Narcotics Bureau's financial investigations division that made the arrests yesterday, including one jobless suspect who allegedly earned HK$25 million, and four others earned HK$1 million each.

Before Lai was arrested the stock was trading at HK$0.075 a share, and then surged to a high of HK$1.96 on August 10 and then fell to HK$0.65 on August 12.

While the police have seized computers, phones and bank documents, as well as froze assets of up to HK$30 million, a lawyer specializing in financial regulation said it really should be the stock market watchdog, the Securities and Futures Commission who should be in charge of investigating the case.

Local media asked the SFC to confirm, but instead today it released a statement saying it would cooperate with the police.

The SFC said it will cooperate with police

In it the SFC said in part:

Investigation into market misconduct offenses, such as false trading, often involves complex questions of law and evidence as well as the need for expert evaluation in relation to securities market functioning, trading methods and investor behaviour. The SFC is ready to respond to any requests made by the Police under the MOU for this type of assistance in relation to any potential offenses under the SFO.

If the SFC had thought there was illegal trading going on, it would have already investigated. Now the police think they have a case on their hands... but do they understand the complexity of financial trading and such?

The police claim the 14 men and one woman made 13,200 transactions involving 1.69 billion shares. The force alleges the accused created hype on social media about the stock to show increasing activity, thus luring others to invest in Next Digital.

Shares in Next Digital shot up for three days after Lai's arrest

Barrister Albert Luk Wai-hung said making such calls on social media did not constitute a crime. What mattered most was if anyone did so with the intention of manipulating the stock price and profiting from it.

While financial regulation lawyer Kevin Yam Kin-fung agreed with Luk regarding social media posts, he said the investigation was justified, giving the number of trades involved.

It will be revealed soon whether the police were correct in arresting these people, or realize the complexity of the stock trades are hard to prove what they did was a criminal act.

And for those who are wondering, Next Digital closed today for the week at HK$0.33.