Alleged ‘rat trader’ investigated

China's securities regulator is investigating a former mutual fund manager from Shenzhen-­based Bosera Asset Management Co who is suspected of involvement in "rat trading," a local securities official confirmed with the Global Times Monday.

Ma Le, former manager of Bosera Select Equity Securities Investment Fund, has been detained by authorities since earlier this month, after the Shenzhen Stock Exchange (SSE) uncovered connections between him and two stock trading accounts that profited from "rat trading," the Economic Observer reported Friday.

"Rat trading" is an illegal practice where fund managers buy shares in their personal trading accounts ahead of large purchases of the same shares by their fund companies so they can profit from a rise in share price following the larger transactions.

"Ma's case is currently under investigation, and we will release the information about the case to the public when we finish the investigation," an official from the press department at the China Securities Regulatory Commission's Shenzhen branch, who declined to give his name, told the Global Times Monday.

When Ma served as Bosera's fund manager between April 12, 2011 and June 21, 2013, shares held by a 1-billion-yuan ($163 million) personal stock trading account were highly similar to those held by the Bosera mutual fund Ma managed, the newspaper quoted a source close to the matter as saying. The source noted that the connection had been found by the SSE's trading monitor system.

Local authorities also discovered the existence of another stock trading account indirectly controlled by Ma, which rose to 30 million yuan from 10 million yuan through stock transactions, the newspaper said.

"Ma resigned from the fund manager position in June for personal reasons, and we have no idea of his situation after his resignation," Yao Jing, a public relations staff member with Bosera Asset Management, told the Global Times Monday.

"Bosera's operation is normal and has not been affected by Ma's incident," she said.

If Ma's case is verified, it will be the largest rat trading activity to date in China's mutual fund industry, industry experts said.

On November 23, Li Xuli, former investment director of Shanghai-based Bank of Communications Schroders Fund Management Co, was sentenced by the Shanghai No.1 Intermediate People's Court to four years in prison and fined 18 million yuan after he made over 10 million yuan in profit through rat trading.

"Rat trading activities hurt retail investors' interests, and mutual fund companies should strengthen internal risk control to prevent their fund managers' misconduct," Zhang Yuanzhong, director of Beijing Wen Tian Law Firm, told the Global Times Monday.

During Ma's two-year term, the return on investment of the Bosera fund he managed was -14.98 percent, lower than the average industry level of -13.04 percent, according to data calculated by Sina Finance.

"But it's difficult for retail investors to seek compensation from the fund management company, as it is not easy to calculate their actual losses and prove the losses are related to rat trading activities," Zhang said.