(Bloomberg) — Chinese regulators are targeting one of the country’s most prominent AI and computing companies after an investigation revealed how the chief executive’s wife secretly sold 150 million yuan ($21 million) worth of company stock during a year-long mega-rally ) acted.
Most read by Bloomberg
Dawning Information Industry Co., one of many Chinese tech leaders blacklisted by the U.S., described how Zhang Dihua pocketed 590,000 yuan from 232 stores between March 3, 2023 and March 14, 2024. The company’s shares rose more than 50% during that period.
Back then, investors flocked to companies expected to ride the wave of AI development in a country locked in a technology race with the United States. Dawning, which disclosed the affair after a stock exchange inquiry, apologized for the incident but stressed that Zhang kept her husband Li Guojie in the dark.
The company’s shares rose as much as 4.1% on Friday. Chinese regulators have pledged to crack down on insider trading and other market irregularities that exist on relatively young exchanges in a business environment where connections are often prominent.
Still, the rare public admission threatens to destroy one of the country’s most influential tech figures. With backing from China’s elite scientific research institute, Dawning is one of a few domestic players developing high-performance chips and servers for government-backed projects. Washington sanctioned the company in 2019 over its role in developing supercomputers, effectively cutting it off from American software and components.
The 80-year-old Li, who has served as Dawning’s chairman for the past decade, is a renowned academic and has been a member of the Chinese Academy of Engineering since 1995. The Purdue University-educated computer scientist led Dawning through a computer boom fueled by Beijing’s efforts to replace American technology.
Read more: China fund beats 98% of competitors and rejects trading AI risks
More recently, investors identified Dawning as one of the potential winners in the AI space.
Zhang’s trading began about two weeks before stocks began their rally, which peaked around June of that year. The stock then gained another 83% between its February low and March 11, 2024, as excitement over machine-generated content reignited.
Her actions were viewed as short-term actions by an executive’s spouse. Dawning said Zhang remitted all profits in accordance with securities law. However, the company stressed that the transactions did not constitute insider trading based on private information because the chief executive was not consulted, the filing said. Dawning said it would conduct appropriate training for managers and that Li and his wife would abide by laws and regulations.
– With support from Mengchen Lu.
Most read by Bloomberg Businessweek
©2024 Bloomberg LP