The U.S. Securities and Exchange Commission has won an emergency court order freezing the assets of six Chinese citizens accused of insider trading in a China-based pork producer whose shares trade in the United States, the agency announced Friday.
As described in the SEC's complaint filed in Chicago federal court on April 4, it was not the most subtle of schemes. The six defendants and a Virgin Islands-based entity, Prestige Trade Investments Ltd., allegedly bought $20 million in common stock and call options of pork producer Zhongpin Inc., between March 14 and March 26.
On March 27,the company’s chairman made an offer to acquire all of Zhongpin’s outstanding stock at $13.50 a share, a 46 percent premium over the previous day’s closing price. The defendants allegedly made $9.2 million as a result.
“The defendants in this action — all with seemingly limited resources — suddenly and inexplicably purchased more than $20 million in Zhongpin securities just before an important public announcement,” said Merri Jo Gillette, director of the SEC’s Chicago Regional Office, in a news release. “The SEC’s swift action to secure a judicial freeze order prevented millions of dollars from moving offshore.”
According to the SEC’s complaint, the trading activity was “wildly out of profile given the individual defendants’ financial situation.” For example, one defendant’s brokerage account was completely dormant for more than a year prior to the Zhongpin purchases.
All six of the accused are Chinese citizens and live in China, though the SEC said that one, Siming Yang, may be living in New York on a temporary work visa. According to the SEC, Yang was employed as a research analyst with investment advisor Baron Capital Management in New York until he was fired on March 30.
Yang is also the owner of Prestige Trade Investments, which he founded in January, funding its U.S. brokerage account with $29 million transferred from a Hong Kong bank.
In addition to the emergency relief, the SEC is seeking permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest and financial penalties.
It’s not the first time the SEC has gone after Chinese citizens — in December, the agency froze the assets of four Chinese citizens and a Chinese-based entity charged with insider trading in advance of a merger announcement by educational companies based in London and Beijing.