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    Amid Child Sex Abuse Scandal, Lawyers Allege Insider Trading

    Two lawyers are asking securities regulators to investigate suspicious sales made after Seazen Holdings’ former chairman was accused of sexually assaulting a child but before the allegation was reported by media.

    Two lawyers in eastern China have submitted a letter to China’s top securities regulator accusing board members and senior executives at a listed real estate developer of insider trading, according to a social media post Sunday by the firm of one of the lawyers.

    On Wednesday, police confirmed reports that Wang Zhenhua, the now-former chairman of Seazen Holdings, had been detained on suspicion of child sex abuse. By the end of the week, Seazen Holdings and two other companies Wang owns had lost a combined $5.4 billion.

    Hours before the police announcement Wednesday, Shanghai-based media outlet Xinmin Evening News reported that Wang, a billionaire real estate tycoon, had been apprehended in connection with the alleged sexual assault of a 9-year-old girl at a luxury hotel. The article sparked an immediate public backlash, and the company’s stock price plummeted by 10% — the daily limit for markets on the Chinese mainland — the day after the story broke.

    Fan Kaizhou, a lawyer at Sailfar Partners in Wuxi, told financial news outlet Securities Times that Seazen Holdings investors had approached him and asked him to sue Wang on their behalf. Together with Yan Yiming, a lawyer with his own firm in Shanghai, Fan drafted the letter to the China Securities Regulatory Commission. The two lawyers said they believe senior executives and board members at Seazen Holdings violated the country’s securities law and demanded an investigation that would “return truth and fairness to the market and its investors.”

    Specifically, the lawyers want to know whether Wang met with the Seazen Holdings board on June 29 or 30 after the alleged sexual assault took place, and whether senior executives at the company were aware of the police report the victim’s mother filed on June 30.

    The lawyers are also questioning why Seazen Holdings did not disclose the allegations against Wang after a July 3 meeting at which the company’s board appointed Wang’s son to be their new chairman.

    According to the police notice, Wang was taken into custody on the afternoon of Monday, July 1. However, the first media reports about the case weren’t published until Wednesday, leaving two days during which anyone with knowledge of the situation could have offloaded Seazen stocks.

    Five large trades were made during that two-day window from the city of Ningbo, according to the lawyers’ letter: Nearly 1.9 million shares of Seazen were sold at a total price of 79 million yuan ($11.5 million). “Please conduct an investigation into the possibility of insider trading,” the lawyers urged the securities regulator.

    Yan told Sixth Tone on Monday that neither he nor Fan had received further communication from Seazen Holdings. A public relations officer at Seazen told Sixth Tone that the company is preparing a public statement in response to the allegations against its former chairman.

    Editor: David Paulk.

    (Header image: Hideki Yoshihara/Aflo/VCG)