Sunday, April 8, 2012
The SEC obtained a court-ordered freeze of the assets of six Chinese citizens and one British Virgin Islands entity charged with insider trading in Zhongpin Inc., a China-based pork processor whose shares trade in the U.S. The SEC’s complaint, filed in U.S. District Court in Chicago on April 4, alleges the defendants reaped more than $9 million by trading in Zhongpin ahead of a March 27 announcement of a proposal to take the company private. The complaint names as defendants one entity, Prestige Trade Investments Ltd., and six individuals, Siming Yang, Caiyin Fan, Shui Chong (Eric) Chang, Biao Cang, Jia Wu, and Ming Ni. The SEC alleged that Yang formed Prestige in January and funded its U.S. brokerage account in March with $29 million transferred from a Hong Kong bank.
According to the SEC’s complaint, the seven defendants bought substantial quantities of common stock and call options in Zhongpin between March 14 and March 26. Zhongpin’s stock price jumped 21.8% on March 27 when the company publicly announced that its Chairman and CEO Xianfu Zhu had made a non-binding offer to acquire all of Zhongpin’s outstanding stock at $13.50 a share, a 46% premium over the previous day’s closing price.
The SEC alleges that the purchases of Zhongpin stock and options were inconsistent with the defendants’ financial situations and prior investment behavior. Each of the defendants placed at least some of their trades from computer networks and hardware that other defendants also used to place trades. In addition to the emergency relief, the SEC is seeking permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties. The emergency court order that the SEC obtained on April 4 on an ex parte basis froze defendants’ assets held in U.S. brokerage accounts, grants expedited discovery and prohibits the defendants from destroying evidence.