(Yicai) Sept. 18 -- Shares of Eastern Pioneer Driving School plunged by the exchange-imposed daily trading limit after its chairman was arrested on suspicion of manipulating the stock market.

Eastern Pioneer [SHA: 603377] closed down 10 percent at CNY5.46 (75 US cents) a share in Shanghai today. The stock has fallen 15 percent since the end of last year.

The arrest of Xu Xiong, who is also a director of the driving school and its actual controller, was approved by public prosecutors in Shanghai, his family told Yicai. His recent arrest may be related to an illicit sale of the company’s shares, the Beijing-based firm said on Sept. 15.

Eastern Pioneer Investment, the driving school’s controlling shareholder, used block trading to cut its stake in the firm by 3.4 million shares on Aug. 28, breaching the rules governing the sale of shares in listed businesses by their controlling shareholders and C-suite executives and was ordered to rectify the contravention.

Eastern Pioneer Investment repurchased the 3.4 million shares using self-raised funds and centralized bidding in the secondary market before Sept. 15. All proceeds from the buyback were attributable to the listed company. 

The driving school’s board of directors has also removed Xu from all of his posts. Yan Wenhui, a co-founder, director, and general manager, has stepped in as acting chairman, it said yesterday.

The Chinese mainland stock market lacks investor confidence, not funds, according to analysts. Insider trading, share price manipulation, illicit stake cuts, financial fraud, and many other rule-breaking and illegal acts easily harm confidence, they noted, adding that penalties for executives who violate the rules are vitally important.

Editor: Martin Kadiev