Business and Finance

Stock cheat's blog leads to calls for Internet regulation

Daitou Dage777.jpg
Would you pay this man for stock tips?
On July 10, police in Jilin detained Wang Xiujie, known online as "Pioneer Eldest Brother 777" (带头大哥 777), who is suspected of having used the Internet to provide illegal investment services. Reportedly a captivating speaker who whipped crowds into a frenzy with his lectures, Pioneer Eldest Brother ran a service through QQ that sent stock tips to subscriber's mobile phones. He also wrote a blog that attracted millions of readers and ranked, for a time, as China's most popular.

The details of his wrongdoing remain sketchy. It seems obvious that he misrepresented his skills. He claimed that his stock market forecasts were more than 90% accurate, and he referred to himself variously as a "stock god" and "guardian angel." Apparently, he also lied about his resume. On his blog, he claimed to have had 18 years of experience in the securities industry. In fact, he worked at the China Construction Bank in the deposits and receivables departments, and later he worked for the housing administration.

While Pioneer Eldest Brother's QQ subscription service appears to have been quite profitable (making ¥10 million by one report), the authorities haven't yet accused him of misappropriating money. Moreover, while a group of his QQ subscribers say that they're planning a law suit against him, accusing him of defrauding and swindling them, the press reports don't suggest that Pioneer Eldest Brother took money other than in exchange for services, like his QQ stock tips or his lectures.

All in all, precisely what got Pioneer Eldest Brother in trouble is unclear: has committed some genuinely heinous act? Is it that he's a charismatic imposter whose popularity made the authorities uncomfortable? Or did his subscribers include one or more government officials who followed his advice and lost money?

Unfortunately, the news commentary doesn't shed much light on the subterranean motives at play. Xinhua warned that Pioneer Eldest Brother is just one of many con artists who have emerged in the wake of China's booming economy, and that shareholders should be careful about hidden fees associated with stock market transactions.

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Cartoon from CCTV.com article
But commentary elsewhere on the web suggested that, whatever it was that got Pioneer Eldest Brother detained, the upshot should be decreased freedom for Netizens. Pinglun.eastday.com exhorted its readers:
Without the platform of the Internet, "Pioneer Eldest Brother" would've been unable to gain influence. . . . Thus it can be seen that [we need to] keep a watch on the Internet, and keeping a special watch on blogs, etc., and public platforms seems particularly urgent. Otherwise, not only regarding the stock market, but also in other areas, "Pioneer Eldest Brothers" can still use the characteristics of the Internet [to con people]. If we fail to keep watch, then there will be a public outcry, and it will stir up trouble.

In light of the questions abounding about the Pioneer Eldest Brother fracas, this response seems particularly ill-considered. A better approach would take account of the irrefutable facts underlying Pioneer Eldest Brother's scam: China's stock market and securities industry are new and exploding. Investors are inexperienced, but eager. They want information about how to invest, but they can't get it: after years of having been censored and co-opted for propaganda purposes, most Chinese media outlets aren't up to the task of meeting investor demand for accurate, timely and detailed information.

Pioneer Eldest Brother exploited this combination of investor naiveté and information vacuum, but scouring the Internet for charlatans is not the best way to reduce the opportunities for exploitation. Such an undertaking would be hopeless, even for China's Internet police: charlatans are as much a part of the Net as html.

Rather than bucking the nature of the Internet, the Chinese government should harness the Net's strengths and develop reliable online information channels for investors. Increasing the credibility and accuracy of available information about publicly-traded companies and the stock market seems the best prescription for the investor gullibility. Such an approach, moreover, would extricate Chinese Internet regulators from their no-win stand-off against the flow of information online. After all, the free flow of online information is as much a part of the Net as charlatans.

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There are currently 2 Comments for Stock cheat's blog leads to calls for Internet regulation.

Comments on Stock cheat's blog leads to calls for Internet regulation

he was probably frontrunning, scalping or doing both. At least frontrunning, i believe known as 老鼠仓, is a securities violation here. There have also been rumors that he was running a private investment fund. Lots of people do that, but it is technically not allowed.

He was the poster child for out of control stock market speculation. It makes perfect sense to take him down, and no doubt he was dirty enough that he made it very easy for regulators.

The thing to find out is, are there any web citizens in China doing this stuff and who are legitimate?

Otherwise, the Chinese government can shut down this site, imprison him and say that it was because the guy was a crook...

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