Everbright denies insider trading

Everbright Securities Co on Tuesday denied that it had conducted insider trading to reduce its losses after a trading error in August 2013, according to a lawyer attending a hearing of a case against the brokerage, marking a twist to a high-profile case involving the brokerage's alleged violations.

Shanghai No.2 Intermediate People's Court opened a hearing on Tuesday, after 109 retail investors sued Everbright Securities for alleged insider trading and stock price manipulation. The investors are demanding compensation totaling nearly 10 million yuan ($1.62 million), according to China Securities Journal on Tuesday.

The brokerage did not "make any mistakes on purpose," lawyers representing Everbright Securities said at the hearing, adding that the company did not know it was conducting insider trading and did not intentionally hide information, according to the report.

A trading error by Everbright Securities caused the Shanghai Composite Index to rise by 5.96 percent within three minutes on the morning of August 16, 2013. The company then promptly sold part of its portfolio in exchange-traded funds and index futures contracts to limit the damage, but did so before issuing a formal notice.

On August 30, the China Securities Regulatory Commission (CSRC) imposed record penalties of 523 million yuan on the brokerage for insider trading, misleading information disclosure and other regulatory and legal violations.

Many retail investors bought shares and futures after the Shanghai Composite Index rose dramatically, but then made huge losses after the securities' shares fell on the following day. That caused them to file lawsuits against Everbright Securities to seek compensation.

The Shanghai court heard the cases of 61 individual investor plaintiffs on Tuesday and will hear the remaining 48 cases on Wednesday, according to China Securities Journal's report.

"We were shocked as the defendant's side denies that they were involved in insider trading," Yan Yiming, a Shanghai-based lawyer who is one of the four lawyers representing the retail investor plaintiffs, told the Global Times on Tuesday.

"The lawyers defending the company are very confident about 'overthrowing' the CSRC decision, despite the fact that the company never filed any sort of administrative petition to the CSRC decision, whereas the decision become a fait accompli," Yan said. "We are puzzled."

Yang Jianbo, former general manager of Everbright Securities' strategy and investment department, filed a lawsuit against the CSRC on February 8 saying that the regulator imposed an "unfair punishment" for the alleged insider trading.

The verdict on Yang's case is still pending.

Yang and three other colleagues were banned for life from the securities industry and fined 600,000 yuan each by the watchdog. Beijing No.1 Intermediate People's Court heard Yang's case on April 3 this year.

"Currently, this country protects consumers' interests better than investors. The cost for breaking the law in the securities market is low," Yan said.

China is mulling an amendment of the Securities Law, which is expected to better protect small and medium investors in the securities market.

Huang Jianzhong, a professor of finance at Shanghai Normal University, said that a court ruling could overrule CSRC's decision on the Everbright Securities case.

"Everbright Securities has always wanted to challenge the CSRC's decision, but as a securities broker administrated by the CSRC, it lacks the guts to do so," Huang told the Global Times on Tuesday.

Shares of Everbright Securities fell 0.84 percent to 9.4 yuan per share on Tuesday. The company's half-year net profit tumbled by 53 percent to 381 million yuan from a year earlier, according to a financial report the company released in late July.