China Regulator Issues Record-High Penalty

China’s securities watchdog issued 3.6 billion yuan of penalties over a case of insider trading by a Shanghainese entrepreneur and his daughter – an all-time record-high regulatory fine.

Wang Yaoyuan and his daughter Wang Chengcheng were fined 2.72 billion yuan ($380 million) for using inside information to build long positions on the shares of listed healthcare company Joincare Pharmaceutical Group. The two made a net gain of 906.4 million yuan ($128 million) which was also confiscated by the China Securities Regulatory Commission (CSRC).

According to the CSRC, the two had obtained insider information that Joincare’s second-largest shareholder Hongxinhang would transfer a 4.8 percent stake to units controlled by two major investors: Tencent founder Ma Huateng and ZhongAn chief executive Ou Yaping. The elder Wang obtained insider information in 2015 through Ou and the controller of Hongxinhang via phone calls and physical meetings.

Neither Tencent’s Ma nor ZhongAn’s Ou was fined or reprimanded by the regulator.

China’s regulator has been increasingly active with issuing fines in a move viewed by onlookers as the end to the practice of immaterial penalties to further discourage unhealthy practices. Earlier this year, the People’s Bank of China imposed the first-ever fines of above 10 million yuan ($1.4 million) to China Minsheng Banking Corporation, China Everbright, and Huatai Securities.

In the first quarter of 2020, the CSRC issued a total of 19 penalties accounting for a 35 percent year-on-year increase, involving mostly cases of insider trading, market manipulation and violation of disclosure rules.

The 3.6 billion yuan fine on the Wangs reportedly surpassed the former leading fine of 3.47 billion yuan issued against the ex-controller of Shanghai Duolun Industry over price manipulation and disclosure breaches.