LONDON, Sept 1 Shares in British hedge fund Man Group fell as much as 2.9 percent in early deals on Tuesday, after the boss of its China unit was reported taken into custody as part of a probe into recent market volatility.

Wang Xiaolu, a journalist with the respected business magazine Caijing, was held after writing a story in July saying the securities regulator was studying plans for government funds to exit the market.

A spokeswoman for Man Group, which says on its website that it manages $78.8 billion of assets, declined to comment on the report or share price move.

State news agency Xinhua said earlier that 197 people in total have been punished in the rumor campaign.

Chinese stock markets have plunged by around 40 per cent since mid-June amid a slowdown in the country’s economy and a surprise devaluation of the yuan.

China Man Group’s country chair Li Yifei was understood to be assisting police with inquiries as authorities clamped down on the spreading of rumours about the stock market.

“I shouldn’t have sought to make a big splash just for the sake of sensationalism”, he said.

Yifei’s husband Wang Chaoyong, however, told the Financial Times that the report was not “accurate” and that the woman was in a “meeting with (financial industry) authorities” since Monday in Beijing.

BEIJING/LONDON – The head of hedge fund manager Man Group’s China business was taken into custody to help authorities in a probe into recent market volatility, while separately a local financial reporter confessed on national TV to having spread false information that caused “panic and disorder”. On Tuesday the Shanghai composite lost 1.3%.

A call to China’s Ministry of Public Security rang unanswered.

The authorities in China have repeatedly blamed market manipulators and foreign forces for the turmoil. Short sellers bet that prices will fall by borrowing securities and selling them in the hope they will be able to buy them back more cheaply.

Michael Hewson, market analyst at the CMC Markets, the spreadbetting company, said the hardline approach seemed to be for domestic consumption.

Some hedge funds have done very nicely out of the global market turmoil triggered by concerns about the Chinese economy.

The investigations are likely to unsettle China’s investment community, and the report of Li’s involvement could leave foreign investors particularly on edge. GLG Group was merged into Man Group in 2010. Before that, Li was managing director of MTV Networks in China, and also worked as chief representative at Viacom Inc.’s China arm, according to her LinkedIn profile. Li has also been a national champion in Chinese martial arts, according to the Rockefeller Foundation biography.