In China, there is no more obvious trade signal than when Xi Jinping, President of China, began a crackdown on companies.
As a result of Xi’s complaint in March that unstable domestic education and “stubborn diseases” are increasingly pressuring Chinese children and their parents, leaders of at least two Chinese companies began selling their shares in New York.
In one of the aforementioned trades, a shell company owned by shares in GSX Techedu executives, whose main market in New York was about $ 24bn at the time, launched a $ 119m share sale three days after Xi spoke.
The sale is part of a series of articles reviewed by the Financial Times that provide the first indication of how and when Chinese executives of major New York companies sell their shares.
In the group, Larry Chen, a GSX executive who does not appear to be affiliated with the bullet company he sold, showed confidence in his business, promising by the end of March to buy $ 50m worth of shares with him.
But one person close to the GSX said its executives knew during the trade that Beijing was seeing strict rules for the companies.
By July, the Chinese government had banned the entire region from making a profit, lowering the prices of all major training companies. Today, a block of GSX shares sold in March would be only $ 4m. Chen does not appear to have fulfilled his $ 50m promise.
GSX (later renamed Gaotu Techedu) declined to comment on the sale and said any part Chen would buy would be identified in public files. Nothing has happened so far.
Just before curbing the July profits, the management of another Chinese educational company re-acquired their shares listed by NY.
A group of men and women who set up an English-language teaching platform 51Talk started selling shares on April 1 and selling shares almost daily until the end of June. Their sales represent about half of the shares sold over several days. By the time Beijing announced its new rules, it had released $ 4.3m. 51Talk did not respond to a repeated request for comment.
Records reviewed by FT show a number of other real-time sales by Chinese regulators. While there is no evidence of internal trade, much of the trade came to the fore in the correction or release of disappointing reports.
Some executives seem to have reached the top of the market. Ten directors and executives at VIPshop, an online retailer, sold about $ 527m of shares in March, about three-quarters of all shares sold in the last 18 months, just before their arrival. The collapse of Archegos Capital Management led to the sale of its shares. The share price here is down 70 percent from its level in March. VIPshop declined to comment.
Chinese officials’ trade is less transparent because they are governed by various reporting laws of the U.S. Securities and Exchange Commission, which require U.S. officials to submit trade reports within two days. In Hong Kong, regulators have three days to report, while Chinese company officials are required to provide 15 days’ notice before the sale.
In contrast, foreign-listed foreign executives registered in the US tend to disclose their assets once or twice a year, or not, depending on the size of their shares. Companies including online marketing giant Alibaba have used their US listings to ban Hong Kong, arguing that any other information is “Unnecessarily burdensome” on the “companies within it”.
In the United States, under Article 144, foreign officials are required to state when they initiate the process of selling prohibited goods either by submitting documents to EDGAR, the disclosure process, or through correspondence.
Almost all of them have already written letters, and the SEC allowed the documents to be kept in its library in Washington DC but not placed in EDGAR. As of last April, the SEC has also approved email notifications, but does not raise this issue with EDGAR either. One trading company set up the record to sell to investors and banks.
“The system does not exist because there are some people who say, yes, we don’t think foreigners should disclose their business – they exist because people did not realize the inconsistency of disclosure laws,” said Daniel Taylor, a corporate economist. specialist at Wharton School.
“When I tell people that the ads are said, but they are sent by the SEC, very few people believe me until I show them the actual letters,” he added.
The SEC is considering changing its rules to mandate that all Forms 144 be submitted to EDGAR.
Chinese artisans also use shell companies to hide what they know. A senior Alibaba executive has used the Bahamas-based bullet company Sky Scraper Enterprises Ltd to launch a $ 100 million stock exchange.
One plan was set up to sell for $ 155m in the weeks surrounding the IPO of Alibaba Ant Group companies. The plan came to naught after Beijing intervened to block the IPO.
While the senior could not be confirmed, there was an obvious fact: he won the biggest and biggest money in the last decade and is one of the highest paid leaders. FT identified various gun companies used by almost all of Alibaba’s top brass, with the exception of senior executives Daniel Zhang and Eric Jing, chairman of the Ants.
Alibaba said it “has a strict policy and procedures in place to ensure that all our employees, especially our directors and officers, comply with all security regulations”. The spokesman added that all officers are required to sell shares according to temporary plans with a cooling period of 30 or 60 days before the start of the trade. The ant refused to answer.
Marketing strategies are designed to ban any illegal trade, but Taylor has it conducted research which shows their potential for misuse. A number of Chinese executives did business in a timely manner according to plans developed at the end of the company’s finances, and regretted that they would have made them when they knew what was coming up each month.
In 2016 and 2017, New York-based Cheetah Mobile and Tarena International executives began selling shares of $ 31m and $ 10m a few weeks before announcing the quarterly results that lowered their prices by 30 percent and 24 percent. cent, respectively. Both men adopted business plans at the end of the quarter.
“This is a big red flag. The fact that the plans were set at the end of the quarter and launched into a campaign before announcing the results is a huge understatement,” Taylor said.
Cheetah Mobile did not respond to a repeated request for comment. Tarena declined to comment.
Additional reports of Hudson Lockett in Hong Kong