MARKETS  FINANCIAL REGULATION
Top Chinese Hedge Fund Manager Gets 5½-Year Prison Sentence
Xu Xiang admitted guilt in case connected to 2015 stock-market crash

Jan. 23, 2017 1:15 a.m. ET
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SHANGHAI—A leading Chinese fund manager has been sentenced to prison for 5½ years for stock manipulation and insider trading, following the most high-profile case connected with the Chinese stock-market bubble and crash of 2015.

The Qingdao Intermediate People’s Court handed down the sentence on Monday to Xu Xiang, the billionaire founder of Zexi Investments, saying the 40-year old had admitted guilt and wouldn't appeal. Mr. Xu was earlier tried and convicted of the crimes during a two-day trial in December.

The court said that Mr. Xu, who was convicted along with two other defendants, had colluded with executives from 13 listed companies between 2010 and 2015 to drive up their share prices, before selling shares just as the companies made public price-moving information such as stock-split plans. Last month, the court said Mr. Xu had done much of his trading through accounts held by hundreds of his family members and associates.

The brief court statement on Monday described the size of Mr. Xu’s profits as “huge” and said the situation was extremely serious, without offering further details. It didn’t specify which listed companies were involved. The court also didn’t disclose the size of fines it handed out to Mr. Xu and the two other defendants.

China’s legal system remains opaque and highly politicized, though technically under its criminal law, trading stocks on insider information can incur up to five years’ imprisonment, or five to 10 years in the case of “extremely severe” violations.

The sentencing is the latest chapter in the fall from grace of Mr. Xu, one of China’s most high-profile investors who had previously earned nicknames such as “Hedge Fund Brother No.1”. His arrest in November 2015 came after police blocked his car on a bridge between Shanghai and his hometown of Ningbo. Mr. Xu was shown in a photograph handcuffed and wearing a white coat on the day of his arrest, the first widely circulated picture of the reclusive fund manager.

His downfall was among several that followed the market debacle in 2015. At the time, Beijing said it suspected widespread market manipulation. Over several months, it ousted top officials from the country’s main market regulator and launched investigations against managers at top brokerage firms, including the country’s largest, Citic Securities Co. Mr. Xu’s arrest was followed by a wave of unexplained disappearances of financial-industry players in Shanghai, where he had been based.