Two Chinese cousins who the feds say summered in the Boston area were arrested this week on charges they managed to screw with the prices of little traded stocks over several years in a scheme that netted them millions of dollars between 2012 and this past June.
Jiali Wang, 41, who owns a condo in Weymouth, was arrested Monday evening at Logan as he was boarding a flight to Beijing, the US Attorney's office reports. Xiaosong Wang, 31, was arrested at his summer home in Upton, the feds say. Both were charged with one count of conspiracy to commit securities fraud, according to the US Attorney's office. Uncharged were some 18 alleged co-conspirators, including Jiali Wang's wife and Xiaosong Wang's mother.
Xiaosong Wang works at Qingdao Huayi Textile and Clothing Co., Ltd, in Shandong Province. Jiali Wang, lives in Weifang, and listed himself as a day trader in documents filed in connection with some of the trades - via accounts he allegedly opened with altered bank statements.
According to the criminal complaint, Xiaosong Wang, Jiali Wang, and others conspired and engaged in a coordinated stock manipulation scheme that artificially influenced the prices of publicly traded securities by making others in the market believe that there was trading interest and activity in particular stocks. In reality, no such interest or trading activity existed, and the defendants profited from the price movements they caused.
The alleged scheme targeted “thinly-traded” securities, which are securities with a low trading volume that are volatile and highly responsive to buying/selling activity. The defendants are alleged to have placed (or coordinated the placement of) thousands of non-bona fide purchase/sell orders in order to move stock prices up or down. After the prices moved and the defendants purchased/sold the securities at the artificially higher/lower prices, the initial orders were cancelled. Defendants and their co-conspirators are alleged to have profited millions of dollars as a result of the stock price spoofing scheme.
According to an affidavit by an FBI agent on the case, all the trading did not go unnoticed. In 2014, one of the brokerage firms they used sent Jiali Wang e-mail that "certain recent trading activity in your account(s) is of a type that may draw scrutiny from exchanges and/or regulators" and asked him to provide an explanation for the trades.
Jiali Wang allegedly replied that his "stock screener software" had pointed him to particular stocks:
I bought the stock when I found it has a large volume of stocks traded, and sold it when the price went to be profitable. But sometime, the stock went out of my pre-judgment, and I chose to stop lossses by according to the trading volume and price direction.
The agent added:
Jiali Wang's response was false because he was in fact engaging in a market manipulation scheme to artificially inflate the prices of certain stocks, including the securities of [two companies referenced by the brokerage]. Of note, the email account he used is the same account that Xiaosong Wang used to open accounts at other brokerages. This is another indicator that the two Defandants were working together and that they maintained joint access to and control over multiple online borkerage accounts.
In another instance with another brokerage, the affidavit continues, Xiaosong Wang apologized for seemingly odd trades by saying he hit the wrong "hot key" in his stock trading software.
Despite his claim of “mistake,” Xiaosong Wang went on to engage in the same type of manipulative trading activity for years following this warning.
If convicted, the two face up to five years in federal prison and fines that could go up as high as twice the gross amount of profit they made.