(Yicai Global) Aug. 23 --Swindlersalwaystryto manipulate share prices, butlike the dog with the bone in Aesop's fable,they do notalwaysmake off with the swag they seek.

Apenalty rulingreleased by China's securities regulatorrelatesthe heart-warming story ofhowtwo such flimflam operators fiddledalisted company'sshares,anteingupnearly CNY1.7 billion(USD250million), butwound up losing CNY550 million(USD80 million), and trading a life of privilege for life as a fugitive.

Farcically, Zhu Yidong, the actual controller of Shanghai Fuxing Financial Holding Group, rented a presidential suite and hired attendants and bodyguards foroneLiWeiwei, who betrayed Zhu and caused him to lose a hugesumby appropriating the fundsZhugave him. The regulatorlevied penalties against both after their illegal practicestranspired.

Fuxing and Li used 25 institutional accounts and 436 individualones to manipulate the stock price ofNortheast China-basedDalian Insulator Group [SHE:002606], pushing it up by 114.32 percent from June 28, 2016 to March 1last year, investigation results released by the China Securities Regulatory Commission on Aug. 14 show.

The commissionhasbarredLi for life from the securitiessector,issueda CNY2 million fine and bannedZhu for three years with a CNY600,000(USD87,500)fine-- in absentia, for reasons that will plain became anon.Othersalsoimplicatedhavealsosuffered sanctions, but these are mere bit players and extras, and so need not detain us here.

Ourcautionary talebegins in 2016. At that time, Zhu Yidong was a second-generation richkidin Shanghai, a so-called'fu er dai.'Relying on his father's wealth gainedfromminingrare earth, Zhupliedthereal estate, finance and otherbusinessesbeforeturninghis handto A-shares.TheFuxing Grouphe ownedusedaccountsit controlled to buy shares inseverallisted companies, among them electrical product makerShenzhen-listed Dalian Insulator Group.

Zhu, then chairman of Fuxing Group, and Liu Guixue, former actual controller of Dalian Insulator, reached a preliminary letter of intent to acquireacontrolling stakeinthe firmin March 2016. The former paidthe lattera security deposit. However, atthe startof the acquisition, Zhu apparentlymistrustedLiu, worriedhe would find another buyerand scrap thedeal.

Zhurelatedthisconcerntoanunderling, Zheng Weixing, Fuxing Group'sgeneral manager ofmergers and acquisitionsandrestructuring division. Zhengthereforesuggested Zhu first buy the stockon the secondary marketand introduced Lito a"top stock trader"he knew.

Zhu's purpose was very clear:hehopedLimightbuy more shares in the secondary market tolifthis firm's market value. Fuxing and Li startedmanipulating the stock pricein cahoots startingJune 28, 2016. FuxinggaveLithefundsheused torigshare prices.

Enter the China Securities Regulatory Commission, thecountry'stop securitiessentinel. The CSRCprobe foundthat Fuxing and Li usedtheircapital advantage multiple times in thecourseof trading Dalian Insulator toinflateits stock price, tradedbetween accounts controlled byLi,and usedinsideinformation toswellthe shareprice. From June 28, 2016 to March 1last year, thecompany'sstockroseover one-fold.

The reasonthis scheme came a cropper in the endand resulted in ahuge loss is because Li privately increased the leverage onthe fundstospeculateon other stocks.

During thesemanipulations, Li used Fuxing's funds multiple times to tradeinother stocks,which causedDalian Insulator'sshares to plummetfrom the end of October to early November 2016, theCSRCinvestigationresultsshowed.

The stocksLiinvestedincontinued to fallto thedaily limitat the end of Februarylast year, resulting in forced liquidationofthe accounts he controlled. The stock price of Dalian Insulator continued to slumpto thedaily10 percent limit downon both Feb.28 and March 1. Dalian Insulatorthensuspended trading on March 2when itannounced a major asset restructuring.

Fuxing transferred a total of about CNY1.7billion via the bank account it controlled to accountsLicontrolledfrom July 2016 to Marchlast year. After Dalian Insulatorresumed tradingDec.6last year, Li sold the stockinhis accounts. Lihad realizeda total loss of CNY551 millionas of March 28.

Zhu discovered that Lihadarranged personnelto plyunplanned transactionson or aroundOctober 2016. In order to enhance management and surveillance of Li, he successively arranged roomsat five-star hotelsfor Li. Li,flanked by attendants and bodyguards, received the royal treatment. Fuxing Groupsplashed for the food and accommodation expenses forLi,hisretainers, bodyguards and traders.

Fuxing Group purchased 40 laptops, 120 wireless network adapters and 40 wireless routers for Li and other personnel to usein November 2016.Interestingly,the roomchosen forthe transactionswas the No.8888 Presidential Suite, which is a homophone for'making a big fortune'in Chinese.

For the purpose of manipulating the stock price, after itfinally succeeded inacquiringDalian Insulator GroupSeptember 2016, Fuxing Group took over the latter's information disclosure and capital operations, andZhu initiated and decidedall information disclosures of major events.

To cooperate with Liin stock trading, Zhu Yidong successivelyresolvedonand issued announcements onlargesharetransfers, announcedincreasesin shareholding and overseas investments.The account teamLicontrolled startedmasssellingafter the releaseof these favorablestatements.

The CSRCdeterminedin itspenalty noticethat Fuxing Group and Li repeatedlyusedtheircapital advantage to pumpup the prices intheirtransactionsinDalian Insulatorsharesand traded between accountstheycontrolled, made false declarations, and exploitedinside information to manipulateshareprices.

Theregulatorbelieved that Fuxing Group and Licookedupthe pricesthrough a variety of illegal means. Thesubstantial sumsinvolved in the case seriously disrupted the order of the securities market andexerteda grievous social impact, CSRC found.

Falling Silent

Zhudisappearedwithouttrace on June 16. "We talked on the phone that afternoon, but suddenly I couldn't get through to himin the evening. Then I contacted him via WeChat[popular messaging app], and at last, it turned out that he didn't even reply to my WeChat message,"one stafferwitha creditorfirm ofFuxing Group told Yicai Global, adding thatthisdisappearance from the radarscreensurprised everyone, includingZhu'swife andfather.

A senior executive of a Shanghai-based enterprise who is close to Zhuslammedhimas a liar, sayinghiscapricious actions atFuxing Groupdroveitsformer shareholders, his initial partners, to quit.

Zhu and his father did earn a lot of money in early years when timesweregood,butthe company's development was toobreakneck. Zhufritteredthe firm's fundsawayonluxury homes, and he had thesole andfinal sayon all matterswithin the company.

He even letoutsiderslikehis driver and warehousemanact as company legal representatives. Finally, a former shareholder of Fuxing Groupwas strong-armed intotransferringhis shares to Zhu.

Zhu hadalsodelayedregistering changes inthecompany'sbusinesswith the authoritiessince he thought thiswoulddestabilize it,and delayedpaymentof CNY200 millionalready overdue for a share transfer, per the senior executive, who added that Zhuasked one of his friends tostandguarantorforloansjust before hefaded from contact,whereupon Zhuabscondedwith thecash.

Li Weiwei,styled'North China's top trader,'is even moreenigmatic than Zhu. The first time hecameintothe publiceyewas also in January, when the media exposed the Dalian Insulator share pricedodge.

Only one wealth management company was under Li's name. Itformed April 15, 2016with registered capital of CNY30 million,withLi holding100 percentof theequity, public information shows.Li also did a moonlit flit, and his present whereabouts are likewise unknown.

Editor: Ben Armour