2 Chinese Nationals Charged for Multi-Million Dollar Stock Manipulation Scheme

The U.S. Department of Justice building in Washington on April 18, 2019. (Chandan Khanna/AFP/Getty Images)

Two Chinese nationals were charged for allegedly participating in a sophisticated stock manipulation scheme to amass millions, federal prosecutors in Boston announced on Oct. 15.

Wang Xiaosong, 31, and Wang Jiali, 41, both Chinese citizens, face one count of conspiracy for committing securities fraud. The criminal complaint said that the two conspired with others in a coordinated market manipulation conspiracy, known as spoofing, and “artificially influence the prices of publicly traded stocks” to create the false impression that some particular stocks are popular, thus profiting off the price fluctuations.

Wang Xiaosong works for a Chinese textile company called Qingdao Huayi Textile and Clothing Co. in Shandong Province, while Wang Jiali is an at-home day trader. The two are believed to be cousins, court documents stated.

The stocks the schemers chose were “thinly-traded” securities, which have low trading interests and thus are highly sensitive to buying or selling activity.

The defendants allegedly placed approximately 3,900 fake transaction orders to drive the share prices of these stocks up or down, then purchased or sold the securities at the new price. They would then cancel the initial orders before fulfilling them.

The conspirators allegedly profited millions of dollars from the conspiracy.

Wang Jiali was arrested at Logan International Airport while boarding a flight to Beijing, while the other was arrested at his Upton Massachusetts residence. Both were due for a Boston court hearing on Oct. 15.

The FBI investigator said that the two also attempted to conceal their trading activities by using dozens of brokerage accounts under various names. Wang Xiaosong doctored his Bank of America statements in order to open an account at a U.S. brokerage firm in April and May of 2018, the agent noted.

When a U.S. broker flagged some account activities in February 2016 and warned that it could potentially constitute a “significant federal violation,” Wang Xiaosong explained that he made a mistake by “us[ing] the wrong hot key,” according to the court filing.

If convicted, the two could face a sentence of up to five years in prison, three years of supervised release, and a fine of $250,000, according to the press release.

The Securities and Financial Fraud Unit launched an initiative to investigate spoofing cases and charged over a dozen individuals for related crimes in 2018, according to a recent Justice Department report (pdf).

In one notable case, the prosecutors charged Chinese citizen Bruce Mao Yuchun for his involvement in spoofing the E-Mini market, according to an October 2018 press release. Mao was an employee of the New York-based trading firm Tower Research Capital, court document shows. Investors suffered a loss of over $60 million due to fraudulent activities.

From approximately March 2012 through March 2014, Mao conspired with others to create thousands of spoof orders in three trading markets, including E-Mini S&P 500 and E‑Mini NASDAQ 100 futures contracts traded on the Chicago Mercantile Exchange (CME), and E-Mini Dow futures contracts traded on the Chicago Board of Trade (CBOT).