Hong Kong arrests 15 over 1,200% surge in shares of Next Digital

Hong Kong’s police force said it arrested 15 people in connection to last month’s surge in shares of Next Digital, the media company owned by vocal government critic Jimmy Lai.

The arrests were made on suspicion of the use of illegal funds and conspiracy to defraud, Chung Wing-man, chief superintendent of the lnarcotics bureau said. The people, who made a combined profit of about HK$38 million ($4.9 million), traded a high volume of Next Digital shares and the police have reason to doubt their source of income, Chung said. Police said one of the people had links to organised crime, and six were unemployed. 

One of the suspects allegedly gained 25 million Hong Kong dollars ($ 3.2 million), while another made 700,000 Hong Kong dollars ($ 90,318), she said.  After news of the arrests went public Thursday, Next Digital's stock price surged again. Next Digital shares had soared by as much as 1,200 per cent following the arrest of Lai.

It closed at 0.41 Hong Kong dollars, up 36.6 per cent.

Next Digital soared more than 1,000 per cent in a span of two days in August amid online calls to buy the stock in a show of support for Lai. Shares have since wiped out most of those gains after Hong Kong’s securities regulator urged “extreme caution” and after Lai himself urged his supporters to avoid buying.

After initially falling on Thursday, shares of Next Digital soared as much as 97%, mirroring last month’s sudden gains. A spokesman for Hong Kong’s Securities and Futures Commission declined to comment on the arrests, while the police declined to comment on whether the markets watchdog was involved in the investigation.

“It’s unusual for the police to be involved in a market manipulation case -- it may be over-eagerness on their part to show action that relates to Apple Daily,” said David Webb, a Hong Kong-based activist investor. “Normally the SFC takes it to the criminal Magistrates’ Court or the civil Market Misconduct Tribunal, without any great spectacle. ”

Webb said he was once a substantial shareholder in Next Digital’s shares but declined to comment on his current holdings of the stock. He owns 7% of Hong Kong Economic Times Holdings Ltd., he added.

The rally in August followed a campaign by pro-democracy supporters to buy up the company’s shares as a way to push back against his arrest. Some Hongkongers and businesses that support the democracy cause have also been buying up advertisements in Lai’s Apple Daily to show their support.

“People with very little money just want to express their anger and express their support for our company,” Lai said in an interview with Bloomberg Television last month. “Everybody bought a little bit. That became a lot of it and jacked up the price. I was telling people ‘don’t do it, don’t do it, because you’re going to lose money.”

Hong Kong’s SFC has requested brokers to submit client information and recent transaction records related to Next Digital’s shares, the Hong Kong Economic Journal reported at the time, citing unidentified brokers.

More than 516 million Next Digital shares changed hands on Thursday, compared with a record 4.1 billion on Aug. 11.

“It’s quite bizarre that local police rather than the markets regulator is investigating a stock market incident,” said Alvin Cheung, associate director with Prudential Brokerage Ltd. in Hong Kong. “People might wonder if there’s something else going on.” 

US consulate in HK sold for $332 mn

The US has sold its consulate staff compound in one of Hong Kong’s most exclusive neighborhoods for HK$2.57 billion ($332 million), amid escalating tensions between China and the US. The price, announced Thursday by CBRE Group which handled the sale, was lower than the HK$3.1 billion to HK$3.5 billion valuation from Vincorn Consulting and Appraisal. The buyer wasn’t named.  Bloomberg