Hong Kong 26-Year-Old Trader Misappropriates HK$50 Million, Suffers HK$150 Million Loss Gambling on 2x Long SK Hynix ETF

Another case of massive fund misappropriation and huge losses from leveraged stock trading has emerged in Hong Kong's Central financial district.

Local media in Hong Kong previously reported that on July 20, a female director of a securities firm located at Universal Trade Centre, 19 Des Voeux Road Central, filed a police report. She alleged that a 26-year-old male employee under her supervision had unauthorizedly misappropriated company funds for stock trading, causing paper losses as high as HK$150 million. The suspect was arrested by police on the same day on suspicion of "theft."

The suspect is a 26-year-old trader at Chief Wealth Investment Limited. The incident occurred between January 9 and July 20 of this year.

Tencent News' "Yi Xian" learned that the trader misappropriated HK$50 million from the company as margin without permission, obtained financing through relevant institutions, and purchased a leveraged derivative listed on the Hong Kong Stock Exchange—the XL2CSOPHYNIX ETF.

Financial professionals in Hong Kong analyzed that the reason the HK$50 million principal misappropriated by the employee escalated into a huge loss of HK$150 million was due to the double leverage effect of margin financing and the 2x long ETF. The trader used this margin to leverage hundreds of millions in buying power and likely held a heavy position before the ETF's sharp plunge in July.

Public data shows that driven by the memory chip concept, the price of the XL2CSOPHYNIX ETF surged to a historical high of HK$193.65 per share at the end of June this year. However, the semiconductor sector subsequently corrected sharply. As of July 20, just before the incident came to light, the XL2CSOPHYNIX ETF had plummeted to HK$52.58, a drop of over 72%.

Currently, information released by the police indicates that the aforementioned stock positions have not yet been forcibly liquidated. This means that the final loss on these positions will still fluctuate with the stock price. The unauthorized misappropriation by the trader was only uncovered during a recent audit and account inspection at Chief Wealth Investment, which subsequently decided to report the matter to the police.

According to a report by the local Hong Kong media outlet Ming Pao, Chief Wealth Investment, where the employee worked, is not a Securities and Futures Commission (SFC)-licensed firm but rather a wealth management and investment company. Public records show that Chief Wealth Investment is affiliated with the Chief Group, which also has some licensed business operations.

Chief Securities, another licensed institution under the Chief Group, subsequently issued a statement clarifying that the individual involved was not an employee of the firm and that Chief Securities was not involved in the incident.

However, Tencent News' "Yi Xian" also learned that following the incident, some clients of Chief Securities withdrew funds defensively due to concerns about risk control.

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