Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Wednesday, February 16, 2011

SEC Charged Brother of Cosmetics Executive with Misappropriating Merger Information

The SEC charged a San Francisco man with unlawfully profiting from advance knowledge of the pending acquisition of Bare Escentuals, Inc., a Bay Area cosmetics company, based on information he had garnered from his sister, a former executive with the company. According to the Commission, Zhenyu Ni, 36, overheard his sister discuss a then-secret acquisition of Bare while visiting her office, and misappropriated this information for his own benefit by purchasing Bare stock and call options. Without admitting or denying the allegations, Ni has agreed to pay disgorgement and penalties of over $300,000.

According to the SEC, Ni visited the office of his sister, Bare’s then Director of Tax, in December 2009 while she was in the midst of preparing due diligence for the possible acquisition of Bare Escentuals by Shiseido Co., Ltd, a Japanese company. While there, Ni is alleged to have overheard his sister taking phone calls during which she used words such as “due diligence file,” “potential buyer” and “merger structure.” Ni then began purchasing Bare stock and call options, ultimately spending almost $165,000 over the next month acquiring securities in his and his father’s brokerage accounts. When Bare announced the tender offer after market close on January 14, 2010, the company’s stock price jumped more than 40%, and Ni allegedly netted illegal profits of $157,066.

The Commission’s complaint, filed in federal district court for the Northern District of California, charges Ni with violating Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder. Ni has agreed to settle the SEC’s charges without admitting or denying the allegations. The SEC’s action does not name Ni’s sister as a party.

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