A federal court in Chicago recently awarded the U.S. Securities and Exchange Commission (SEC) an emergency court order freezing the U.S. assets of six Chinese citizens. The SEC’s complaint against the six defendants accuses them of insider trading in Zhongpin Inc., a China-based pork producer whose shares are traded in this country.
According to the SEC, the Chinese defendants and Prestige Trade Investments Ltd., based in the Virgin Islands, allegedly purchased $20 million in Zhongpin common stock and call options between March 14 and March 26. On March 27, Zhongpin’s chairman made an offer to buy all of the company’s outstanding stock at $13.50 a share, a price that represented a 46 percent premium over the closing price a day earlier.
The defendants allegedly turned a handsome $9.2 million profit.
Reporting the SEC’s description of the Chinese defendants’ trading activity as “wildly out of profile given the individual defendants’ financial situation, ” the Legal Times noted that one of the defendants had engaged in no trading for over a year before purchasing the shares in Zhongpin.
The six defendants are all Chinese citizens living in China with the exception of Siming Yang, who may still be in New York after allegedly being fired from his job as a research analyst with Baron Capital Management on March 30. Yang also owns Prestige Trade Investments in the Virgin Islands, which entity Yang recently created in January. Yang funded Prestige Trade’s brokerage account in the U.S. with $29 million in a transfer from a bank in Hong Kong.
As shown by the SEC’s swift action in this case, the agency has a zero tolerance policy for insider trading and other types of securities-related fraud. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) offers procedures, incentives and protections for whistleblowers who report what they know about securities-related fraud to the SEC. Like the qui tam provisions of the federal False Claims Act, Section 922 of Dodd-Frank provides compensation to those whose information leads to a successful SEC enforcement action. Whistleblowers may be entitled to awards of 10 to 30 percent of recovered sanctions of $1 million or more.
Waters & Kraus is a national firm with highly skilled lawyers practicing qui tam litigation in four offices, including Dallas, Los Angeles, San Francisco, and Baltimore. Our attorneys have decades of experience successfully representing whistleblowers in a variety of fraud cases. Contact us or call our attorneys at 800.226.9880 to learn more about our practice and how we can assist.
