Sunday, October 2, 2005

Bank Analyst and Husband Charged with Insider Trading

An analyst for Citizens Bank and her husband are among the defendants in parallel criminal and civil insider trading cases filed by the U.S. Attorney for the District of Massachusetts and the Securities & Exchange Commission.  Shengnan Wang worked in a division responsible for conducting the due diligence on possible acquisitions,  and she became aware of Citizens' pending acquisition of  Charter One in 2004.  Wang tipped the manager of a hedge fund in which she and her husband, Hai Liu, had invested, about the pending deal.  Michael Tom then purchased Charter One shares on behalf of a hedge fund he managed for Global Time Capital Management, LLC.  According to the SEC's Litigation Release (here):

[B]etween April 29, 2004 and May 4, 2004, Michael Tom purchased numerous Charter One call options, which increase in value with a rise in the stock price, for his personal account and for his hedge fund, GTC Growth Fund. Michael Tom also traded Charter One securities prior to Citizens' announcement in a joint account he held with his wife and in accounts he managed for his wife and in-laws. According to the complaint, Michael Tom's illegal insider trading in Charter One securities resulted in total imputed profits of approximately $743,505.

The Complaint also alleges that Michael Tom and Wang's husband, Hai Liu, tipped their brothers, David Tom and Zheng Liu, respectively, about Citizens' acquisition plan. As a result, both David Tom and Zheng Liu traded in Charter One securities prior to Citizens' announcement. David Tom's trading resulted in imputed profits of approximately $39,089, while Hai Liu's brother, Zheng Liu, made imputed profits of approximately $2,736.

The SEC complaint names Wang, Liu, Tom, Global Time Capital, and the two brothers as defendants, while the criminal case involves a one-count criminal complaint against Wang and Liu charging securities fraud (U.S. Attorney's press release here).  The filing of a criminal complaint usually indicates that the defendants will enter a guilty plea, and look for criminal charges against Tom and the hedge fund in the near future, perhaps by way of an indictment if he chooses to fight the charges.  Once again, even if it looks like free money by trading in a stock before news hits the market, it just doesn't seem to work out that way once the SEC and U.S. Attorney's Office connect the dots -- and this does not sound like a particularly tough puzzle to put together. (ph)

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Civil Enforcement, Insider Trading, Prosecutions | Permalink

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