Saturday, October 13, 2012
The SEC filed new charges in its pending insider trading case against several Chinese citizens and a Chinese-based entity. The SEC previously charged the defendants in complaints filed on December 5 and 14, 2011, with insider trading after they reaped more than $2.8 million in profits by trading in advance of a publicly announced merger between London-based Pearson plc and Beijing-based Global Education and Technology Group, Ltd.
The SEC’s second amended complaint, filed on October 4, 2012, names a new defendant, Jie Meng. According to the SEC’s second amended complaint, Meng was a friend of Angela Yang’s (a/k/a/ Yang Yan), a resident of Beijing, China. Yang worked for Pearson and was privy to the details concerning the Global Education acquisition before the transaction was made public. In the fall of 2011, Yang told Meng that Pearson was going to acquire Global Education and that if the buyout was successful, the stock price of Global Education would increase. Yang also told Meng that the information about the Global Education acquisition was “top secret” and asked Meng not to tell anybody about the acquisition out of fear of losing her job. Yang then sent Meng $40,000 to purchase Global Education securities. Meng used Yang’s $40,000 plus approximately $35,000 from the bank account Meng shared with previously charged defendant Song Li to purchase 24,592 shares of Global Education securities in Li’s brokerage account.
The second amended complaint also alleges that Pearson and Global Education each announced before trading began on November 21, 2011 that Pearson agreed to acquire all of Global Education’s outstanding stock for $294 million. Global Education’s stock price increased 97 percent that day, from $5.37 to $10.60. On November 21 and 22, 2011, Meng sold a total of 20,592 Global Education shares at an average price of $10.51 per share, resulting in profits of over $142,000. Soon thereafter, Meng requested that the brokerage firm liquidate Li’s account and issue Li a check for the proceeds of Meng’s trading. However, as a result of asset freeze orders imposed in the SEC’s case, those proceeds have remained frozen in Li’s account.
The SEC’s second amended complaint charges Meng with violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Without admitting or denying the allegations of the second amended complaint, Meng consented to the entry of a final judgment enjoining Meng from future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, ordering Meng to pay disgorgement, jointly and severally with Li, of $142,052 plus prejudgment interest of $2,141 for a total of $144,193, and ordering a civil penalty against Meng in the amount of $71,000. The second amended complaint also dismisses Li as a defendant, names her as a relief defendant, and orders her to pay, joint and severally with Meng, disgorgement plus prejudgment interest totaling $144,193. The monetary sanctions will be paid out of the frozen funds.
With respect to the other defendants in the pending action, Lili Wang consented to the entry of a final judgment enjoining her from future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, ordering Wang to pay disgorgement of $197,117.80 plus prejudgment interest of $1,474.15 for a total of $198,591.95, and ordering a civil penalty against Wang in the amount of $197,117.80. The cases against the remaining defendants, Yonghui Zhang, Xuechu Yang, Sha Chen, Zhi Yao, and All Know Holdings Ltd., are pending. The Court’s previous orders freezing the balance of the remaining defendants’ trading profits remain in effect.