A suspicious trail led investigators from key figures at the China Securities Regulatory Commission straight to Sinolink’s Lei Bo.
Li Jing and Yu Ning 31 May 2009
A probe targeting securities executive Lei Bo has extended a trail of suspected corruption that began last year at the office of Wang Yi, a former deputy chairman for the China Securities Regulatory Commission (CSRC) and an ex-vice president for China Development Bank (CDB).
On a wider scale, the investigation may signal growing interest in reforming IPO procedures on China’s stock markets as well as clamping down on former CSRC officials who abused their positions in recent years.
Lei, a former CSRC official and most recently chairman of Sinolink Securities Co. (SSE: 600109), has personal links to Wang and other former CSRC figures accused of wrongdoing. Sinolink announced the Lei probe in a statement May 13.
Market rumours that investigators were targeting Sinolink had circulated since April 2008, when the firm’s then-chairman Wei Dong committed suicide in his home. But Lei, who replaced Wei as head of Sinolink and its parent Yongjin Group, denied the speculation.
The walls started closing in around Lei in January, when Wang Yi was formally arrested on bribery charges.
And in May, authorities arrested and levelled bribery charges against Xiao Shiqing, a former acting deputy chief of the CSRC listing department who helped prepare Sinolink’s IPO two years ago.
Pricing Clues
The Lei investigation may have been sparked by spectacular increases in share prices for Sinolink after its March 2007 stock debut, when it became China’s first securities firm to list through a shell company.
The share price rose nearly 130 percent on the debut, arousing suspicions among CSRC regulators. Officials wondered whether shares had been deliberately undervalued.
Before the launch, Lei oversaw a two-stage asset restructuring in 2006 that prepared the firm for the market.
At that time, Lei instructed Yongjing subsidiaries to raise their stakes in Chengdu Securities, a firm owned by a target shell company Chengdu Investment Co. They were to boost the combined holdings to 38 percent.
This asset restructuring, together with capital injections from other shareholders, increased Chengdu Securities’ registered capital by 372 million yuan to 500 million yuan. Chengdu Securities was then renamed Sinolink Securities.
Shareholders of the new Sinolink bought all of Chengdu Investment’s assets with 51.76 percent of Sinolink’s shares, completing the shareholder reform in December 2006.
According to the listing prospectus, the company’s offering price was 3.30 yuan per share. Sinolink was valued at 1.66 billion yuan and its price-to-earnings ratio was 2.75. However, since Sinolink was not listed at that time, the price was discounted 22.89 percent based on liquidity concerns. Eventually, the value of the 51.76 percent stake in Sinolink was set at more than 665 million yuan.
By October 2007, however, the firm’s value had soared to 40 billion yuan, based on stock prices in the 60 yuan to 70 yuan range.
Sinolink-related trading activity reflects the kind of IPO practices that CSRC is now trying to eliminate.
The former Chengdu Securities was a second tier securities dealer in China, which raises the question: how did it persuade the regulatory commission to approve its listing? Moreover, Chengdu Securities acted as its own guarantor for the backdoor listing, a practice that has been banned by the CSRC ever since.
Currently, there is no first-day trading limit for shares on China’s stock markets. As a result, stock prices often soar on debut. This almost-guaranteed first-day profit has created intense competition for IPO shares, raising risks of favouritism and corruption in share allocations.
CSRC is now considering new rules that could open IPOs to wider pools of investors and reduce discrepancies between IPO and trading prices on stock debuts.
Lei’s Contacts
In addition to stock price anomalies, Lei’s relationships with CSRC officials such as Wang and Xiao apparently made him a focus of investigators.
The case of Wang, placed under investigation on June 8, 2008, has been transferred to the state procuratorate from police. However, procurators are still investigating, and a formal legal case has yet to be filed.
Wang was only in his thirties in November 1995 when he rose to the powerful position of CSRC deputy chairman. At the securities watchdog, he was put in charge of several key divisions that included managing IPOs and funds.
Wang was being treated in a hospital in 1997 when his relationship with Lei blossomed. The patient received close, personal care from the securities firm executive.
“Lei was even more attentive than Wang’s family members,” a source said. “He acted just like a male nurse for Wang.”
By the end of the year, Lei had been promoted to a job as Wang’s secretary -- a post he held until 1999. Another Wang subordinate at CSRC was Xiao, who rose to deputy chief in 2004.
Wang transferred to CDB from CSRC in 1999, while Lei was appointed deputy director of CSRC’s listing department. Sources close to the case said Lei’s promotion would have been impossible without Wang’s recommendation, as Lei had no related professional experience.
Lei, 51, is a Communist Party member with a medical background. He started working at CSRC in a service center for logistical support.
After his successful career at CSRC, Lei tried his hand in the securities industry. He became president of a small securities firm in February 2001. That led him into business with Yongjing, Sinolink and the late Wei.
Today, Lei’s reputation is mixed. “Lei Bo is a gamester,” said one securities insider. “He spends a lot in Las Vegas. He’s not at all afraid of losses.”
In a 2008 interview, Lei said Wei was a good teacher and close friend. He called him an ideal business partner.
Lei also described his work as Wang’s secretary at CSRC a decade earlier. He said Wang was involved in securities, but that his relationship with Wang in recent years was purely personal. He called Wang diligent, studious and easy-going.
At Wei’s memorial service in May 2008, Lei told journalists that he had filed reports with relevant CSRC departments stating that daily operations at Yongjin remained unchanged.
“The company will not be affected by Wei Dong’s passing,” he said.
That same day, Sinolink’s share price rose 5.34 percent to close at 52.85 yuan -- twice what it had been just one month before.
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Personal Ties Turn Bitter for Sinolink Chief
A suspicious trail led investigators from key figures at the China Securities Regulatory Commission straight to Sinolink’s Lei Bo.
Li Jing and Yu Ning
31 May 2009
A probe targeting securities executive Lei Bo has extended a trail of suspected corruption that began last year at the office of Wang Yi, a former deputy chairman for the China Securities Regulatory Commission (CSRC) and an ex-vice president for China Development Bank (CDB).
On a wider scale, the investigation may signal growing interest in reforming IPO procedures on China’s stock markets as well as clamping down on former CSRC officials who abused their positions in recent years.
Lei, a former CSRC official and most recently chairman of Sinolink Securities Co. (SSE: 600109), has personal links to Wang and other former CSRC figures accused of wrongdoing. Sinolink announced the Lei probe in a statement May 13.
Market rumours that investigators were targeting Sinolink had circulated since April 2008, when the firm’s then-chairman Wei Dong committed suicide in his home. But Lei, who replaced Wei as head of Sinolink and its parent Yongjin Group, denied the speculation.
The walls started closing in around Lei in January, when Wang Yi was formally arrested on bribery charges.
And in May, authorities arrested and levelled bribery charges against Xiao Shiqing, a former acting deputy chief of the CSRC listing department who helped prepare Sinolink’s IPO two years ago.
Pricing Clues
The Lei investigation may have been sparked by spectacular increases in share prices for Sinolink after its March 2007 stock debut, when it became China’s first securities firm to list through a shell company.
The share price rose nearly 130 percent on the debut, arousing suspicions among CSRC regulators. Officials wondered whether shares had been deliberately undervalued.
Before the launch, Lei oversaw a two-stage asset restructuring in 2006 that prepared the firm for the market.
At that time, Lei instructed Yongjing subsidiaries to raise their stakes in Chengdu Securities, a firm owned by a target shell company Chengdu Investment Co. They were to boost the combined holdings to 38 percent.
This asset restructuring, together with capital injections from other shareholders, increased Chengdu Securities’ registered capital by 372 million yuan to 500 million yuan. Chengdu Securities was then renamed Sinolink Securities.
Shareholders of the new Sinolink bought all of Chengdu Investment’s assets with 51.76 percent of Sinolink’s shares, completing the shareholder reform in December 2006.
According to the listing prospectus, the company’s offering price was 3.30 yuan per share. Sinolink was valued at 1.66 billion yuan and its price-to-earnings ratio was 2.75. However, since Sinolink was not listed at that time, the price was discounted 22.89 percent based on liquidity concerns. Eventually, the value of the 51.76 percent stake in Sinolink was set at more than 665 million yuan.
By October 2007, however, the firm’s value had soared to 40 billion yuan, based on stock prices in the 60 yuan to 70 yuan range.
Sinolink-related trading activity reflects the kind of IPO practices that CSRC is now trying to eliminate.
The former Chengdu Securities was a second tier securities dealer in China, which raises the question: how did it persuade the regulatory commission to approve its listing? Moreover, Chengdu Securities acted as its own guarantor for the backdoor listing, a practice that has been banned by the CSRC ever since.
Currently, there is no first-day trading limit for shares on China’s stock markets. As a result, stock prices often soar on debut. This almost-guaranteed first-day profit has created intense competition for IPO shares, raising risks of favouritism and corruption in share allocations.
CSRC is now considering new rules that could open IPOs to wider pools of investors and reduce discrepancies between IPO and trading prices on stock debuts.
Lei’s Contacts
In addition to stock price anomalies, Lei’s relationships with CSRC officials such as Wang and Xiao apparently made him a focus of investigators.
The case of Wang, placed under investigation on June 8, 2008, has been transferred to the state procuratorate from police. However, procurators are still investigating, and a formal legal case has yet to be filed.
Wang was only in his thirties in November 1995 when he rose to the powerful position of CSRC deputy chairman. At the securities watchdog, he was put in charge of several key divisions that included managing IPOs and funds.
Wang was being treated in a hospital in 1997 when his relationship with Lei blossomed. The patient received close, personal care from the securities firm executive.
“Lei was even more attentive than Wang’s family members,” a source said. “He acted just like a male nurse for Wang.”
By the end of the year, Lei had been promoted to a job as Wang’s secretary -- a post he held until 1999. Another Wang subordinate at CSRC was Xiao, who rose to deputy chief in 2004.
Wang transferred to CDB from CSRC in 1999, while Lei was appointed deputy director of CSRC’s listing department. Sources close to the case said Lei’s promotion would have been impossible without Wang’s recommendation, as Lei had no related professional experience.
Lei, 51, is a Communist Party member with a medical background. He started working at CSRC in a service center for logistical support.
After his successful career at CSRC, Lei tried his hand in the securities industry. He became president of a small securities firm in February 2001. That led him into business with Yongjing, Sinolink and the late Wei.
Today, Lei’s reputation is mixed. “Lei Bo is a gamester,” said one securities insider. “He spends a lot in Las Vegas. He’s not at all afraid of losses.”
In a 2008 interview, Lei said Wei was a good teacher and close friend. He called him an ideal business partner.
Lei also described his work as Wang’s secretary at CSRC a decade earlier. He said Wang was involved in securities, but that his relationship with Wang in recent years was purely personal. He called Wang diligent, studious and easy-going.
At Wei’s memorial service in May 2008, Lei told journalists that he had filed reports with relevant CSRC departments stating that daily operations at Yongjin remained unchanged.
“The company will not be affected by Wei Dong’s passing,” he said.
That same day, Sinolink’s share price rose 5.34 percent to close at 52.85 yuan -- twice what it had been just one month before.
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