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China investor hikes compensation claim for jailed tycoon over insider trading

(Xinhua)

13:05, September 07, 2011

BEIJING, Sept. 7 (Xinhua) -- A Chinese investor on Tuesday substantially raised his compensation claim against jailed home appliance tycoon Huang Guangyu and his wife Du Juan over insider trading.

Li Yan had demanded compensation of 155 yuan (24.3 U.S. dollars) in the civil lawsuit case heard Tuesday at the Beijing No. 2 Intermediate People's Court.

Li had said he lost 155 yuan after selling 500 shares on June 15, 2007 as a result of the insider trading.

In the court hearing on Tuesday morning, Li's lawyer, Zhang Yuanzhong, said his client raised the claim to around 800,000 yuan to cover stock trading losses and related commission fees, stamp duties and interest earnings during further trade in 2007 and 2008.

The trial then adjourned after the increased compensation claim.

If the court rejects the hiked compensation claim, new separate lawsuits will be filed later, Zhang said.

This is the first civil suit filed against Huang over insider trading and many more investors could follow if Li wins the lawsuit and receives compensation.

Li said he purchased more than 50,000 shares of Shenzhen-listed Beijing Centergate Technologies at 14 yuan per share before the shares trading was suspended in September 2007 pending restructuring announcement. He later bought an additional 37,000 shares at 16 yuan after the restructuring plan was announced in May 2008.

Li said he sold all the shares at over 4 yuan per piece months later when the company announced the restructuring plan failed, resulting in the huge losses.

"The early active trading was actually a result of the insider trading, but the illusion then made me believe the restructuring was very likely and therefore affected my investment decisions," he said.

Experts said the lawsuit might reach a stalemate due to difficulty in obtaining and confirming evidence, as there is no law concerning civil lawsuits over insider trading in China.

Several questions should be answered in the case as to whether there was an actual restructuring plan, and if there was, what caused it to fail, said Ye Lin, a professor of law at Renmin University.

Regardless of the outcome, the case will help to nurture the safeguarding of rights and awareness to further regulate the development of the domestic securities market, said Yang Zhaoquan, a lawyer at the Beijing Yangzhaoquan Law Office.

For eradicating insider trading at its root, civil compensation is as important as criminal responsibility, Yang said.

Huang, former chairman of the Chinese electronics retail giant Gome, was sentenced to 14 years in prison last year for illegal business dealings, insider trading and corporate bribery.

Huang was also fined 600 million yuan (93.9 million U.S. dollars) and ordered to forfeit 200 million yuan worth of assets.

His wife was sentenced to three years in prison with a three-year reprieve in the second-instance trial, compared to a three year and six months prison term for insider trading in the first-instance trial.

Huang was once the richest man on the Chinese mainland and the former legal representative of both Gome and Beijing Pengrun Real Estate Development Company.

As the major shareholder of Beijing Centergate Technologies, Huang was found guilty of insider trading of the company's stocks, with a total value of more than 1.415 billion yuan, from April to September 2007.

Those dealings earned him more than 309 million yuan in trading profits.

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