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Over the course of two years, three former high ranking officers from Chinese sapphire manufacturer Roshow Technology have been detained by Chinese authorities over insider trading, but the company has tried to downplay the incidents, according to a Chinese media China Times report. Some industry insiders also revealed company officers leaking sapphire investment info as a possible cause over the arrest.
Roshow Technology’s main business is in electromagnetic wire, but has benefited from market interest over the company’s sapphire investment over the past six months. The company’s stock has grown exponentially from RMB 9 (US $1.44) in December 2013 to RMB 25 by first half of May 2014. The company’s stock growth was especially evident after April 2, 2014, with prices skyrocketing to RMB 24.33.
Masked behind the company’s stellar stock performance, company Board Secretary Chai Shen quietly resigned on May 6, 2014. Chai was detained by police under suspected criminal involvement, but the reason was not clarified in company announcements. Police later revealed Chai was detained for suspected involvement in insider trading, two other former high ranking company officers have also been arrested for the same reasons.
Roshow Technology officers insider trading record
According to an announcement released on April 26, 2014, the company was notified by Economic Crime Investigation Department of Zhejiang Provincial Public Security Department that Chai had been detained for unknown reasons. Roshow Technology planned to offer further details. Market rumors at the time pointed Chai might be “involved in insider trading.”
The company did not further comment on the case till Chai quit on May 6, 2014. Roshow Technology kept a low profile since, and responded to media inquiries with the statement “the incident has nothing to do with company management.”
Police followed China’s legal protocols and informed Roshow Technology, Chai’s family members and China Securities Regulatory Committee about the reasons behind Chai’s detainment. The police’s notification is not the final verdict, “but the company announcement claiming unknown reasons behind the detainment shows the company is trying to avoid responsibility,” said Shao Bin, Lawyer, Zhejiang Yuanyou Law Firm.
Chai is not the only high ranking company officer that has been arrested for insider trading, two other former Roshow Technology officers, former Director Li Guoqian and Deputy General Manager Juying Xu were also detained over the same charges. The two officers resigned in July 4, 2013, but the company did not report suspected insider trading in any public announcements. Roshow Technology defended its actions citing the arrests happened after the two officers quit. Xu faces bail pending trial, while Li’s arrest has been approved by legal authorities.
Involvement in insider trading is a serious crime, Roshow Technology should explain the reasons behind Chai’s detainment, or the public announcement is susceptible of being a false statement, said Song Yiqin, a Senior Partner specializing in financial law at Shanghai New Hope Law Firm. The company should also make public arrested former officers insider trading involvement, even if it happened after they resigned. Companies should be responsible towards investors by clarifying whether officers suspected of insider trading were individual or group actions, added Song.
Roshow Technology Board Chairman Xiaojun Lu is acting as interim Board Secretary at the moment. The company’s stock representative Li Zhentao rejected interviews and claimed “the police statement we received did not clarify reasons behind the detainment. We contacted the criminal investigation team, but they did not reply.”
Roshow Technology’s sapphire investment smells fishy
According to info from Zhejiang police and industry insiders, the two former Roshow Technology officers detained were involved in insider trading related to the company’s sapphire investment.
Roshow Technology stock prices soared after the company announced its partnership with Biel Crystal on April 2, 2014. The two companies signed a sapphire joint venture agreement a day earlier to establish Biel Roshow Sapphire to develop optic material, conduct sapphire synthesis technology R&D and sales. The market has interpreted the partnership as a “sapphire concept,” but the shady part of the deal was Roshow Technology’s two time denial of the investment.
The company’s stock prices surged for two days from Dec. 4-5, 2013 after plans of investing RMB 1.1 billion in sapphire manufacturing surfaced on the market. Roshow Technology quickly denied rumors of entering the sapphire business in an announcement on Dec. 6, 2013, and refuted the info circling on the Internet was untrue. However, this did not halt the company’s soaring stock prices, which increased over 50 percent in a period of six days.
Roshow Technology issued its second announcement on Dec. 16, 2013 to quell sapphire investment rumors. The announcement was effective in adjusting stock prices for one month, but market rumors about sapphire investments continued to rage on. The company stock prices began a slow upward climb during the second half of January 2013.
It was not until April 2, 2014 that the company denied sapphire investments again. Roshow Technology made a public announcement that it invested RMB 200 million or 40 percent of Biel Roshow Sapphire’s listed capital of RMB 500 million. The new company will be established in Horgin District, Inner Mongolia, China. The company stocks continued an upward surge for five consecutive days after the investment was confirmed. The company released further details about Biel Roshow Sapphire construction progress on May 7, 2014.
Normally, listed companies do not reveal important information including restructuring and acquisitions beforehand, noted a stock broker. Companies usually are very tight-lipped about these important decisions, but an analysis of Roshow Technology’s sapphire investment indicate the information was completely leaked before the deal was sealed.
China’s Securities Regulatory Commission has completed investigations into Roshow Technology’s insider trading involvement, said sources from the commission. The case is now being turned over to police for further investigations. The commission will not publish Roshow Technology’s penalty since investigations are still ongoing.
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