According to the Epoch Times, small American investors are being defrauded of billions of dollars by Chinese corporate insiders who use advanced information to make lucrative trades just before the stock price falls.
Insiders of Chinese businesses listed on American markets avoided total losses of at least $10 billion by selling before price decreases between 2016 and the middle of 2021, according to a new assessment of their security filings.
Chinese firm shares declined by an average of 21% a year after insiders sold large amounts of stock, compared to a 2% rise when executives from American companies sold huge amounts of stock.
The study was covered by the Wall Street Journal, which cited Alibaba Group Holding Ltd. as an example. According to the Wall Street Journal, “Alibaba’s payments unit, Ant Group Co., was preparing for an initial public offering in October 2020, a move that would have likely increased the value of Alibaba’s one-third ownership.”
However, Jack Ma, Alibaba’s founder, and CEO, publicly chastised China’s financial regulators for canceling the listing. Alibaba shares sank 8% on the New York Stock Exchange, instead of increasing as the market projected (NYSE).
SkyScraper Enterprises Ltd. sold nearly $150 million worth of Alibaba stock one day before Ma’s statement. SkyScraper is controlled by an Alibaba insider, but no one knows who he or she is.
The researchers—Robert Jackson, Bradford Lynch, and Daniel Taylor—point out that, in comparison to insiders in the United States, US securities regulation benefits and empowers Chinese insiders.
According to the Wall Street Journal, “executives and other major shareholders at American corporations must declare their trades in a document that is placed on the Securities and Exchange Commission’s website and openly available to investors within two days.”
The three researchers want the insider trading loophole to be closed, but the SEC is dragging its feet, giving Chinese corporations a significant edge that is likely bilking small American investors out of billions of dollars.
Other SEC loopholes exist for Chinese publicly traded corporations as well. The SEC does not require Chinese companies listed on U.S. exchanges to meet the same auditing criteria as American corporations.