‘Enigma Net­work’ spurs Hong Kong raid


The largest ever raid by Hong Kong’s se­cu­ri­ties reg­u­la­tor was linked to the multi-bil­lion dol­lar plunge in nearly three dozen small-cap stocks in June, ac­cord­ing to a per­son fa­mil­iar with the sit­u­a­tion.

In a speech on Wed­nes­day, the city’s Se­cu­ri­ties and Fu­tures Com­mis­sion head of en­force­ment Tom Atkin­son said 136 agents re­cently searched mul­ti­ple premises, with­out dis­clos­ing what trig­gered the raid.

The search was re­lated to the so-called Enigma Net­work, the per­son fa­mil­iar said, a group of com­pa­nies whose over­lap­ping own­er­ship ties and bub­ble-like qual­i­ties were pub­li­cised by ac­tivist in­vestor David Webb in May. The stocks gained wide­spread at­ten­tion in Hong Kong af­ter many of them sud­denly plunged by as much as 90% on June 27.

Jonathan Li, an SFC spokesman, de­clined to com­ment on links be­tween the raids and Enigma.

The SFC and stock ex­change have made clean­ing up Hong Kong’s small-cap mar­ket a pri­or­ity over the past year, say­ing wild share-price swings and al­le­ga­tions of ma­nip­u­la­tion have dam­aged the city’s rep­u­ta­tion. Hong Kong Ex­changes & Clear­ing is re­view­ing the rules for its small-com­pa­nies ex­change, where many of the stocks high­lighted by Mr Webb are listed.

The raid was re­lated to “ne­far­i­ous groups of inter-re­lated com­pa­nies that work in co­or­di­na­tion to ex­tract value from un­sus­pect­ing in­vestors,” Mr Atkin­son said in his speech, adding that ev­i­dence was be­ing pro­cessed. He didn’t pro­vide fur­ther de­tails.

“Any­one who has been ex­ploit­ing in­vestors through this type of scheme should not un­der­es­ti­mate our re­solve to stop them,” Atkin­son said.

A worker cleans win­dows at a com­mer­cial build­ing in Hong Kong. Au­thor­i­ties say 136 agents re­cently searched mul­ti­ple premises in the city.

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