Hong Kong’s financial circles are abuzz with talk about the arrest of 15 people on Thursday for manipulating the stock price of media company Next Digital Limited (282), as unease emerges over the police’s action of overriding the market regulatory body, Securities and Futures Commission.

Financial professionals rattled by the crackdown wondered if political motives were at work, and whether discussions about the stock market on WhatsApp chat groups constituted market manipulation and fraud.

Police detained the 15 people, aged between 22 and 53, on suspicion of using illegal funds and conspiracy to defraud.

The arrestees made a combined profit of about HK$38 million (US$4.9 million) by repeatedly trading HK$1.69 billion worth of Next Digital stock, accounting for 23.8% of total transaction volume, said Chung Wing-man, chief superintendent of the police’s narcotics bureau. One of them made a profit of HK$25 million, Chung said.

They allegedly conspired with one another using WhatsApp to conduct more than 10,000 transactions from Aug. 10 to 13, after Next Digital founder Jimmy Lai and four other top executives were arrested under a new national security law, fraud and other offenses. Next Digital is the publisher of Apple Daily.

Lai, an outspoken pro-democracy media mogul, was on Aug. 10 arrested on suspicion of sedition and collusion with foreign forces, offenses introduced by Beijing on June 30 through the controversial national security legislation. More than 200 police officers also raided the headquarters of Lai’s newspaper, Apple Daily, on the same day.

Many considered the arrests as an attack on the freedom of speech and dissent in Hong Kong and an attempt to silence government critics and pro-democracy activists. The stock market saw a surge of interest among retail investors in the listed Next Digital, which soared 2,513% from its Aug. 10 trough to the Aug. 11 peak, hitting HK$1.96 before declining 66% to HK$0.68. On Aug. 11 alone, 14,293 transactions were recorded.

Hedge fund manager Edward Chan said the police’s latest arrests gave people the impression of the case being politically driven because stock market manipulation should have been handled by the SFC, not the police.

“The SFC has the authority to summon anyone, and those being summoned have no right to remain silent,” lawyer and security consultant Kevin Yam said.

Mike Leung, investment manager of Wocom Securities, said that the issue of whether it was illegal to discuss the buying and selling of certain stocks of identical prices in a WhatsApp chat group was a “gray area” and depended on regulators' ability to prove the transaction orders were made by the same person.

Next Digital has a free float of 738 million shares, amounting to 28% of its total issued shares.

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