Chinese Retail Investors Manipulate US Stock Market Case Final Judgment Reached

The U.S. Securities and Exchange Commission (SEC) announced on Tuesday that a final judgment has been made by the Massachusetts district court against a Chinese trader involved in a large-scale stock manipulation scheme. The scheme involved a group of individual investors from Shandong manipulating over 3,900 publicly traded securities in the United States, illegally profiting tens of millions of dollars.

According to the SEC, one of the masterminds, Xiaosong Wang, was found guilty of market manipulation and violating the anti-fraud provisions of the U.S. Securities Act. He is required to return $1.04 million in illegal proceeds along with over $80,000 in corresponding interest. This amount will be satisfied through a forfeiture order in parallel criminal proceedings and funds previously collected in civil cases. In a parallel criminal case, Wang pleaded guilty last September and was sentenced to 30 days of detention, forfeiture of $1.04 million, and ordered to leave the U.S. and return to China.

Another key perpetrator in the same case, Wang’s cousin Jiali Wang, was also found guilty of violating the Securities Act and is required to return $7.75 million.

In February 2024, a final consent judgment was issued against the remaining defendant, Wannian Investment, determining that the company must pay $4.12 million, representing the net profit transferred to Wannian Investment through the scheme.

Furthermore, in 2022, the court issued default judgments against 16 Chinese traders, ruling that they violated the anti-fraud provisions of the U.S. Securities Act and are jointly liable to return $35.6 million in illegal profits and nearly $6 million in pre-judgment interest, each also required to pay a civil penalty of $2 million. Additionally, 10 relief defendants must return a total of over $1.51 million in ill-gotten gains. In summary, the 26 Chinese individuals manipulated the U.S. stock market to illegally profit over $31 million, with the court’s final judgment ordering them to “spit out” over $75 million in principal and interest to the SEC.

The case involved a market manipulation technique known as “spoofing.” The group utilized a large number of fake orders to create a false market impression, influencing stock price movements, and then quickly withdrawing the orders to profit from price changes. From 2013 to 2018, these Chinese traders utilized high-frequency trading technology to manipulate over 3,900 U.S. securities, leading to distorted market prices and causing harm to ordinary investors.

Through analyzing vast trading data, tracking IP addresses, and account relationships, the SEC successfully uncovered this massive cross-border market manipulation network. In 2019, the SEC froze assets of 18 Chinese traders, and subsequently expanded the investigation, resulting in the court ruling that 16 primary defendants and 10 relief defendants must jointly bear over $75 million in fines and return of ill-gotten gains.

Most of the traders involved in this case come from Shandong, China, with three of them owning properties in the United States. Jiali Wang and his wife Jing Guan, the masterminds of the group, live in Weifang City, Shandong Province, and own an apartment in Weymouth, Massachusetts. Jiali Wang’s cousin Xiaosong Wang owns a residence in nearby Acton. Apart from these three individuals who frequently travel between China and the U.S., the other Chinese traders do not reside in the United States.

Additionally, the 10 relief defendants, while not directly participating in fraudulent trading, were required to return profits due to lending their accounts to the main offenders or allowing others to control their accounts. The relief defendants named in the civil lawsuit are not accused of wrongdoing but still face claims. These individuals come from various industries, including state-owned enterprise employees, tech company workers, elementary school teachers, and advertising company employees, demonstrating the wide scope of the manipulation group’s involvement.