UPDATE 1-HK's Next Digital shares dive, then surge as police arrest 15 over Aug rally

(Adds Hong Kong police)

HONG KONG, Sept 10 (Reuters) - Next Digital Ltd shares swung sharply on Thursday as Hong Kong police arrested 15 people on suspicion of conspiracy to defraud and money laundering in relation to the rally last month that followed the arrest of the company’s owner.

The stock closed 36.7% higher at HK$0.410, having earlier tumbled some 20% after local newspaper South China Morning Post first reported the arrests. It was unclear what drove the wide price swings. The stock has a broad retail investor base.

The media company’s shares had surged in August after tycoon Jimmy Lai became the highest profile arrest under a broad national security law imposed by Beijing on the Asian financial hub.

The August rally was attributed to retail investors buying amid an online campaign to show support for Lai, a longtime pro-democracy activist and critic of Beijing. Pro-democracy supporters also woke up early to snap up Next Digital-published anti-government tabloid Apple Daily to show support.

Police on Thursday said 15 people were arrested as their actions seemed coordinated. They transacted the stock 13,000 times over three days, sometimes roughly at the same time, while drumming up buying interest on social media, the police said.

They were aged 22 to 53, and six were unemployed and one was a civil servant, Narcotics Bureau Chief Superintendent Chung Wing-man told reporters, saying the group earned HK$38.7 million ($5 million) in total from the scheme. One person in the group made most of the money, around HK$25 million.

“Given the age and occupation status, we have serious doubts on their financial resources. This is exactly what we are going to find out, where the money comes from and where will it go,” Chung said.

New Digital shares climbed from HK$0.10 to HK$1.96 over two sessions in August, before plunging just as fast.

Upon his release from detention, Lai, who is yet to be charged with violating the new security law, told his supporters not to touch the stock as its rally would not last.

$1 = 7.7502 Hong Kong dollars Reporting by Clare Jim, Donny Kwok and Marius Zaharia; Editing by Jacqueline Wong and Tom Hogue