Zexi's Xu Sentenced To 5 1/2 Years In Prison For Market Manipulation

Jan 23 2017 | 9:46pm ET

One of China’s most prominent hedge fund managers, Xu Xiang, has been sentenced to five and half years in prison for market manipulation.

Xu, founder and general manager of Shanghai Zexi Investment, was also fined a record 11 billion yuan (around $1.6 billion) by a court in Qingdao City, Shandong Province. 

Xu was detained following a November 2015 raid as part of a concerted effort by Chinese authorities to clamp down on the investment strategies – and their managers – they blamed for contributing to the country’s $5 trillion stock market collapse earlier that year.

At the time, a number of senior executives from Chinese financial firms were taken into custody to “assist” with wide-ranging investigations into who profited from the market volatility, with several leading regulators and brokerage executives subsequently arrested as well.

Founded in 2009, Zexi ran four of the ten top performing Chinese hedge funds during the three months between June and August. Zexi’s Number 1 fund gained more than 70% during the period, during which the broader Chinese market dropped 30%.

According to an official statement, Xu collaborated with two associates and conspired with managers from 13 listed companies between 2010 and 2015 to take advantage of inside information. The amount he allegedly earned from such trading was not released but characterized as “especially huge” in the Chinese-language statement, according to Bloomberg. He pled guilty to the market manipulation and insider trading charges in December 2016.

His fine, if substantiated, would rank as the largest single penalty ever levied on an individual for an economic crime in China.

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