Hong Kong penny-stock crash firm says two executives arrested

Lerado Financial

08/12/2017 09:55

By Clare Jim and Jennifer Hughes 
    HONG KONG, Dec 8 (Reuters) - A Hong Kong company identified 
as part of a network of penny-stock firms whose share prices 
crashed spectacularly in June, said two of its executives are 
under investigation while another firm said it has been "invited 
to assist" authorities. 
    Both companies featured in a group dubbed in May by 
independent investor and stock commentator David Webb as the 
"Enigma Network". Webb charted cross-shareholdings between 50 
otherwise unrelated Hong Kong-listed companies. 
    Several Enigma stocks plunged within minutes of each other 
on June 28 for no clear reason, erasing over $6 billion in 
market capitalisation in a single day. Many shares lost more 
than half their value.  urn:newsml:reuters.com:*:nL3N1JP1OY 
    Among those whose stocks crashed were Convoy Global Holdings 
Ltd  1019.HK  and Lerado Financial Group Co Ltd  1225.HK . 
    Late on Thursday, Convoy said in a stock exchange filing 
that it had suspended two executive directors who were being 
investigated by "enforcement officials". Lerado said on Friday 
it had been invited to assist the Independent Commission Against 
Corruption (ICAC). 
    Also on Thursday, the ICAC said in a statement it had 
arrested three senior company executives. It did not identify 
the firms they were connected with, neither did it mention the 
Enigma Network or any related companies. 
    The anti-graft body also said it and markets watchdog, the 
Securities and Futures Commission (SFC), had searched eight 
premises in relation to the arrests in their first ever joint 
operation. It did not disclose the nature of the operation. 
    "You can see the level of the issue has been escalated 
beyond the SFC with the involvement of ICAC. It shows that the 
issue is unfolding and to a deeper level," said Alvin Cheung, 
associate director of Prudential Brokerage Ltd in Hong Kong. 
    Convoy halted trading of its shares on Thursday morning. 
Trading in Lerado's shares has been suspended by the SFC since 
June 7 on suspicion of Lerado publishing misleading information. 
Since the crash, the regulator has suspended trading of four 
more Enigma stocks. 
    "We are in the early days of this when several stocks have 
been suspended but the SFC has not taken any action against the 
companies involved," Webb told Reuters. 
    On Friday, Convoy said it "followed standard protocol" in 
suspending the two directors "in order to support the 
investigation of the authority." 
    The same day, Hong Kong newspaper Singtao Daily reported 
that the third arrested person was a former Convoy manager and 
now executive of Lerado. Newspaper Mingpao reported that the 
three were suspected of corruption related to share-backed 
financing. 
    Convoy, the ICAC and the SFC each declined to comment 
further on Friday. Several calls to Lerado went unanswered. 
    Shares in many of the 50 Enigma stocks were down on Friday. 
 
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Hong Kong's second board plumbs record lows amid market jitters  
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 (Reporting by Clare Jim and Jennifer Hughes; Editing by Anne 
Marie Roantree and Christopher Cushing) 
 ((clare.jim@thomsonreuters.com; +852 2912 6653; Reuters 
Messaging: clare.jim.thomsonreuters.com@reuters.net)) 
 
Keywords: HONGKONG PENNYSTOCKS/SCANDAL