Tang’s path to the moneyed corridors of Bay Street was circuitous. Raised in humble circumstances in China’s Hunan province—his father was a carpenter at a local farming machinery plant; his mother worked as a commercial tofu maker—Tang moved to Canada at 32 to earn a masters degree in biology from the University of Waterloo. His first foray into the world of finance came at a Toronto branch of Canada Trust. It was 1993, and Tang was working as a biomedical researcher at the Toronto General Hospital. His wife, Hong Xiao, and daughter, Wenyi, had recently joined him from China (his son Wensi was born a year later), and he wanted to open his first RRSP account. The bank representative asked if he had ever considered investing on his own. “The idea was utterly alien to me,” he writes in his book. “Prior to that, I had never touched stocks; indeed, at the time, I saw little difference between buying stocks and reckless gambling.”
Enticed by the roaring bull market of 1993, Tang soon changed his mind. He transferred his limited savings from safe, low-yielding government bonds to riskier, higher-yielding equities, and when his portfolio grew by 40 per cent in the first year, he developed the zeal of a convert, proselytizing about the merits of the market. Witnessing his success, some of Tang’s colleagues approached him to invest on their behalf. In 1996, although he hadn’t obtained a trading licence from the Investment Dealers Association of Canada or the OSC, he left his research career to focus on investing full time. Over the next year, his clients grew to more than 100 and his assets under management to $4 million. He claimed to have an average return of 30 per cent, and to have never lost his investors a penny.
Even at this early stage of his new career, there were troubling signs. In the late ’90s, the IDA launched an investigation into Tang’s activities with one of his clients, a 42-year-old hotel housekeeper identified in legal filings as YZ. On Tang’s advice, YZ had opened a trading account in February 1999 at Gorinsen Capital, a brokerage firm where Tang’s wife had recently started working as a sales trainee. Until then, Tang had executed trades through his clients’ bank accounts. Mutual funds are designed as long-term investments typically held for months or years; Tang was trading them daily. The banks eventually refused to accommodate him, so he began trading for YZ through her Gorinsen account. When YZ attempted to redeem some of her investment four months later, she discovered that her $50,000 account had decreased dramatically. Tang guaranteed in writing that he would reimburse her in six months if he couldn’t trade her balance to its original level. But soon after, he stopped returning her calls. By mid-October, YZ’s account had dropped to $11,000. She also discovered Tang had executed 356 trades on her account, incurring $25,258 in commission charges. Unlike the banks, which didn’t charge commissions, Gorinsen charged $51 to $99 per trade; YZ was aware of this and had expressly instructed Tang to reduce his trading volume when she opened the account.
The IDA’s investigation concluded that Tang had ignored his client, was a reckless trader and, because of the cost and frequency of his trades, could never have made a profit. In 2004, the IDA fined Tang’s wife $45,000 and imposed a 10-year suspension from the industry. (Because Tang was not registered with the IDA, he was not subject to sanctions.)
Just as Bernard Madoff preyed on the Jewish community, Weizhen Tang appealed to the Chinese diaspora
Many of Tang’s clients deserted him after the banks curtailed his short-term trading of mutual funds. He also suffered significant losses during the market downturns of 1998, 2000 and 2001, which angered his remaining investors—prompting some to harass Tang’s family and friends to get their money back. Nearly destitute, Tang mortgaged his modest, two-storey house near Bayview and Steeles, lived off credit card loans, and rented out his basement to a boarder.
In 2004, however, he devised the slogan that would transform his fortunes. In a promotional campaign spread through the Chinese media, he rebranded himself as “The King of 1% Weekly Returns”—a seemingly innocuous claim that would result in a gargantuan 52 per cent annual return. Even better, his new strategy promised to involve minimal risk. “Tang keeps 99 per cent of the total investment pool outside the market for safekeeping, while amplifying the remaining one per cent with certain leverage,” he explained. “In this way, Tang is able to put a cap on the maximum loss while generating steady and continuous returns.”
Tang’s articles and marketing materials read like scripts for TV infomercials. But instead of sculpted abs or a clear complexion, Tang offered the ultimate self-help product: wealth. The viral marketing power of the Internet allowed him to publicize his new identity and investment strategy. He posted stock tips and investing advice on the DaQian Stock Forum, an on-line message board. In May 2005, Shanghai’s Dragon TV interviewed Tang in an episode of Meeting the Financial Community entitled “Chinese Elite Challenging Buffett,” and the legend of the Chinese Warren Buffett was born. Tang, a relentless self-promoter, soon created his own blog on his corporate Web site, where he posted hyperbole-filled articles trumpeting his genius. He also gained credibility through his close association with people such as Daniel Xu, an economics professor at the University of Western Ontario, who wrote the preface to Tang’s book and spoke at a Tang event.
It seems that Tang is a chronic liar who has illusion of his reality. Unfortunately, his “too good to be true” pitches had won many naive investors over until….
November 20, 2010 at 6:22 pm | by Jessie