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To: funincolo who wrote (1495)	11/17/2000 7:09:55 PM
From: StockDung	Read Replies (2) \| Respond to of 2413

FEATURE: Phony stock exchange exposes share dealing risks .c Kyodo News Service BEIJING, Nov. 18 (Kyodo) - By: Geoffrey Murray It seemed too good to be true. And it was. At least 300 residents of central China's Shanxi Province thought they were on the road to riches when a new ''stock exchange'' opened up on their doorstep. But after they had invested a total of 10 million yuan ($1.21 million) the whole thing turned out to be a big swindle. In fact, the Shanxi Public Security Department (PSD) and the Taiyuan Supervisory Office of the China Securities Regulatory Commission said they have uncovered six separate attempts to operate fake stock markets in the province since April. The bogus stock markets appeared in Taiyuan, Linfen and several other cities in Shanxi, according to official media reports. Would-be investors were sold fake shares and were even charged commissions on the sales. Some of the operators reportedly also conducted a phony futures and options exchange to add ''reality'' to the stock market schemes. Some of the exchanges even had computers displaying financial data, but the data were counterfeit, created and manipulated by the operators to bilk investors. Orders could neither be passed to legitimate stock exchanges nor legally registered for transfer, and all the money went straight into the personal bank accounts of the perpetrators. And only a fraction has been recovered so far. The Shanxi PSD and the securities supervisory department investigated six illegal securities operations run by four different unregistered ''financial services'' companies and several people were arrested, but much of the investors' money remains missing. The case illustrates some of the hazards for unwary private investors hoping to play the stock market, even those buying and selling on the country's only two legal exchanges in Shanghai and Shenzhen. Take the case of Li Hua, now running a steamed bread and dumpling shop in Shenyang. Previously, she worked as a company bookkeeper, amassing enough money to quit to become a full-time stock investor. But within months her entire hard-earned capital of 400,000 yuan was gone. ''I realized then, I simply didn't know what I was doing,'' she admitted ruefully. The story is repeated all across the country as a get-rich-quick mentality grips Chinese society. Families have been made destitute because they joined the stock market roller coaster without realizing share prices could go down, as well as up. Most simply didn't have enough information about the listed companies to make informed choices about which stocks to buy. Earlier this year, Premier Zhu Rongji declared during a nationally televised news conference the government would spare no expense in hiring overseas securities specialists to help tame the country's unruly stock markets and rebuild investor confidence. Zhu said he was prepared to pay top salaries to specialists from Taiwan, Hong Kong and elsewhere to help tighten regulation of the markets. He said there had been more than 5,000 cases of corruption involving the stock markets since early 1998, adding, ''We still need to make tremendous efforts before we can make our securities markets trustworthy to the entire Chinese people and trustworthy in particular to all the investors in the market.'' While the premier did not single out any specific cases of securities fraud, confidence in the Chinese markets has been shaken by a series of scandals involving accounting irregularities, misuse of corporate funds and the disclosure of false financial information to pave the way for public stock offerings. In the early 1990s, when the first experiments in public share trading were begun in Shanghai and Shenzhen, several unofficial exchanges cropped up in various parts of the country but were quickly suppressed by the authorities. The Shanxi incident was the first to be reported for several years. Several major cities have been bidding in recent times for official approval to set up their own exchanges, part of an effort to increase their importance as economic hubs of their respective regions and that may have helped the fraud artists because they were able to capitalize on rumors approved stock exchanges were in the offing outside Shenzhen and Shanghai. But the China Economic Times last month quoted an unnamed official with the Regional Economic Development Department of the State Development Planning Commission (SDPC) as declaring China had reached its quota concerning securities exchanges nationally and would not establish any more. In explaining his announcement, the SDPC official said development of the Internet and communications technology meant share dealings were possible anywhere in China, without a need for local bourses. Launching new exchanges in other cities would not only be hard to regulate, but it also would go against the international trend of exchange consolidation for greater efficiency, he said. The securities industry suffered a fresh image setback in October when China's leading business magazine published an article exposing alleged irregularities within the fledgling fund management sector. According to the Caijing Monthly, the article was based on research by an inspector of the Shanghai Stock Exchange, allegedly punished subsequently for disclosing his work to the media. The magazine said analysis of the trading records of 22 funds managed by 10 fund management companies revealed many illegal practices, especially insider trading by fund managers. It accused the companies of ''generating vast profits at the expense of small investors.'' The allegations could not have come at a worse time. Mutual funds are just beginning to become a part of the Shanghai and Shenzhen exchange operations and rules are being drawn up by the government for the operation of open-ended funds that set no limits on the amount of public investment. Present funds are closed, with investment limits and a cut-off date for investment. The Caijing Monthly report drew a immediate response from the industry, with the 10 fund managers issuing a joint statement in three key securities newspapers to condemn the report and reserving their right to sue the magazine. They claimed the article was distorted, full of inaccuracies, and demonstrated a lack of understanding of the securities market. But the magazine stands by its claims. And in this it has the support of Cheng Siwei, deputy chairman of the National People's Congress, who admonished the same fund managers for ''rigging stock prices to trap small investors.'' AP-NY-11-17-00 1823EST