Fine of 300 million! A petrochemical company manipulated the polypropylene futures market for 3 months and made a profit of 560 million!

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On May 10, during an interview at the Fushun Procuratorate in Liaoning Province, reporters learned that the procuratorate had previously successfully handled a new type of crime involving the manipulation of the futures market through the hoarding of physical goods. The suspect created fake supply and demand conditions, thereby disrupting the normal functioning of the futures market’s roles in price discovery, hedging, risk management, and resource allocation; this in turn affected the operations of the real economy. In just three months, the suspect managed to earn over 560 million yuan, severely disrupting the orderly development of the capital market. The prosecutor handling the case successfully completed the review and prosecution process despite various challenges, including a lack of expertise in the subject matter and an abundance of case documents. This is not a normal transaction – the price of polypropylene 1609 has been manipulated. Jia Shi Hua Co., Ltd. (hereinafter referred to as Shi Hua Company) is a subsidiary controlled by 70% by Jia Wu Pin Group Co., Ltd. (hereinafter referred to as Wu Pin Group); at the time of the crime, the suspect Wu was the president of Wu Pin Group, as well as the legal representative and chairman of Shi Hua Company. At that time, the management of the Material Products Group entered into a three-year performance-based agreement with its holding company, stipulating that if the profit targets were not met, the benefits allocated to the management would be reduced accordingly. In April 2016, the Sogo Group incurred losses. In order to achieve profits, Wu instructed the head of the R&D department at the petrochemical company to focus on polypropylene products. Following research by the R&D department, it was determined that the polypropylene 1609 contract (where 1609 refers to delivery in September 2016, and trading is possible up until that delivery month) was suitable for a long-position strategy. In May 2016, Wu convened a meeting with the heads of various departments at the petrochemical company to discuss strategies, and it was decided to purchase large quantities of polypropylene 1609 futures contracts while also stockpiling physical goods, in order to drive up both the price of physical goods and the price of futures contracts. After the meeting, the various departments of the company began to carry out the actual trading operations under Wu’s instructions, using 19 accounts including the company accounts that were under actual control, fund management accounts, and personal accounts, to purchase a large quantity of polypropylene 1609. On May 24, 2016, the 19 accounts under the actual control of the petrochemical company held 37,494 lots in long positions, accounting for 11.28% of the total holdings, which exceeded the position limit set by the Dalian Commodity Exchange. On July 19, 2016, the 19 accounts under the actual control of the petrochemical company held 143,005 lots in long positions; the guarantee amount for these long positions exceeded 400 million yuan, accounting for 35.65% of the total long positions. On July 26, 2016, the 19 accounts under the actual control of the petrochemical company held a buying position of 140,000 lots; the guarantee amount for these buying positions was close to 400 million yuan, and they accounted for 36.70% of the total holding volume, thus giving them a competitive advantage in terms of holdings. Meanwhile, petrochemical companies accumulated large quantities of polypropylene in stock through direct purchases, entrusted procurement, and buybacks, creating an atmosphere of high demand for polypropylene in the market in order to manipulate its price for grade 1609. Not only that, Wu also instructed researchers to write an article titled \"A Cautious Look at the Market Amidst a Strong Recovery in Polypropylene Prices,\" and publish it on public platforms in order to help the futures accounts controlled by the petrochemical company close their positions and realize profits. The reporter learned that during the manipulation by the petrochemical company, the price of polypropylene 1609 rose from 6,389 yuan per ton to 8,355 yuan per ton, an increase of 30.77%. The 19 accounts actually controlled by the petrochemical company generated illegal profits of over 560 million yuan. In June 2017, during its audit, the National Audit Office discovered that the Sogo Group was suspected of using futures accounts under its actual control to go long on polypropylene futures contracts. By increasing its futures positions on a large scale, and simultaneously raising the price of these contracts through the accumulation of physical goods, the group would later close those positions to realize profits. Subsequently, the **Audit Office transferred the clues to the CSRC and the Ministry of Public Security. Thus, this seemingly “perfect and ordinary” transaction was exposed. To investigate the suspected criminal activities of the company, a large volume of transaction data was examined. In August 2017, the public security authorities launched an investigation into the Wuchan Group for its alleged involvement in manipulating the futures market. In April 2018, the case was transferred to the Fushun Procuratorate for review and prosecution.