A company CEO used his five-year-old daughter’s cell phone to secretly trade his company’s stock to artificially inflate its price, the Auckland High Court has found.
Messages from Chinese instant messaging service WeChat were presented as evidence that Wei (Walker) Zhong conspired with his wife Lei (Regina) Ding and others to inflate Oceania Natural Limited’s share price in 2016 and 2016 artificially inflating 2017.
Zhong secretly traded in an ASB securities account set up in the name of his wife’s elderly father and pretended to be the old man living in China, Judge Michael Robinson ruled.
Robinson found that Zhong had violated the Financial Markets Conduct Act by secretly trading the shares of Oceania Natural, which was listed on NZX’s NXT small business exchange.
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Robinson discovered that Ding had also secretly traded Oceania Natural stock using a second stock trading account held by ASB Securities, this one in her mother’s name.
Zhong and Ding denied the allegations, but two of the people with whom they conspired to buy and sell Oceania Natural stock at high prices had previously admitted market manipulation.
They were CPAs Zhongyang (Sean) Meng and Jiashun (Sam) Qian working for him at Meng and Associates, based in the same premises as Oceania Natural.
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In a WeChat message, Qian referred to Meng as “Master”.
Meng was a non-executive director of Oceania Natural and a trustee of Zhong’s family foundation.
Robinson said Zhong and Ding claimed that they ultimately did not benefit from the trades conducted on Ding’s elderly parents’ securities accounts and that their trading did not cause harm to third parties.
“I don’t accept their submission,” Robinson said.
Market manipulation undermines the integrity of the stock market, Robinson said in an April 6 ruling.
Each time Oceania Natural’s stock price has been supported by manipulative trades, the book value of Zhong Family Trust stock has increased, sometimes significantly, Robinson said.
The court also heard evidence that Zhong wanted to attract additional investors to Oceania Natural. A higher stock price could help, Robinson said.
“This also aligns with Mr. Zhong’s WeChat message to Ms. Ding dated June 7, 2016, in which he expressed his concerns about the declining share price while negotiating with an investment bank,” Robinson said.
Zhong and Ding also claimed that they carried out powers of attorney for Ding’s parents according to their instructions.
The parents have made no statement. First, the court was told they could not testify because they could get the remote video conferencing technology to work.
Then Zhong and Ding told the court that the elderly would not testify “for humanitarian reasons.”
Robyn Edie/Stuff
The market manipulation was carried out using ASB securities accounts.
Robinson said there was no evidence Ding’s parents instructed their daughter and son-in-law to place trades for them.
When Zhong used his daughter’s phone to make trades on his father-in-law’s account, he pretended to be the older man, Robinson said.
Oceania Natural sold Cook Island Manuka Honey, Noni Juice and other related products in China.
As it was listed on the NXT market, it was subject to disclosure rules designed to ensure transactions by its officers and directors were disclosed to the market and also to prevent market manipulation.
Oceania Natural was delisted from NXT in 2018 and liquidated by its shareholders including Zhong, Ding, Meng and Qian in June 2019.
The case was taken over by the financial markets authority Te Mana Tatai Hokohoko.
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Margot Gatland, Head of Enforcement at the Financial Markets Authority, said: “Our market disclosure requirements are part of a comprehensive disclosure regime that is the core tenet of transparent markets.”
It called for civil penalties against Zhong and Ding and a statement that the pair engaged in market manipulation.
A hearing is scheduled to decide the penalties facing Zhong and Ding.
In March last year, Meng was fined $180,000 and Qian was fined $130,000.
Margot Gatland, the FMA’s Head of Enforcement, said: “The FMA will not tolerate any misconduct of this nature as it can significantly undermine the integrity of New Zealand’s markets and investor confidence.”
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