The following excerpt is from the SEC website:
“Washington, D.C., Dec. 6, 2011 — The Securities and Exchange Commission today announced that it has frozen the assets of four Chinese citizens and a Chinese-based entity charged with insider trading in advance of a merger announcement by educational companies based in London and Beijing.
The SEC moved quickly to obtain an emergency court order to freeze assets just two weeks after the suspicious trading by Sha Chen, Song Li, Lili Wang, and Zhi Yao, who have U.S.-based brokerage accounts. Some of them already attempted to liquidate or transfer their illicit profits.
The SEC alleges that they purchased American Depository Shares (ADS) of Beijing-based Global Education and Technology Group in the two weeks leading up to a November 21 public announcement of a planned merger with London-based Pearson plc. Some of their brokerage accounts were dormant until they bet heavily on Global Education shares, and some of the purchases made either equaled or exceeded the stated annual income of that trader. After the agreement was announced, they immediately began selling some of their Global Education shares. Their illicit gains totaled more than $2.7 million.
“On the basis of non-public information, these traders suddenly purchased massive amounts of Global Education shares in U.S. brokerage accounts that had been largely inactive,” said Merri Jo Gillette, Director of the SEC’s Chicago Regional Office. “We’re pleased the court immediately granted our order to freeze these accounts before proceeds from the illegal trades could be transferred outside U.S. jurisdiction.”
The SEC also charged All Know Holdings Ltd. and one or more unknown purchasers of Global Education stock in its complaint filed on December 5 in U.S. District Court for the Northern District of Illinois.
According to the SEC’s complaint, Pearson and Global Education each announced before trading began on November 21 that Pearson agreed to acquire all of Global Education’s outstanding stock for $294 million ($11.006 per share traded in the U.S.). Global Education’s stock price increased 97 percent that day, from $5.37 to $10.60.
The SEC alleges that Chen, Li, Wang, and Yao made their purchases of Global Education’s ADS shares while in possession of material, non-public information about the merger. A Global Education co-founder and Chairman of the Board apparently tipped Wang and possibly others about the potential acquisition. Wang then transferred new funds into her previously dormant brokerage account and bought 28,000 Global Education shares. The others also engaged in similarly suspicious trading in Global Education stock, which was typically thin. On November 18, the last trading day before the acquisition announcement, their purchases accounted for more than 35 percent of the entire day’s trading volume for the company’s shares, which trade on the NASDAQ.
The SEC alleges that the defendants each violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In addition to the emergency relief, the SEC seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties. The emergency court order that the SEC obtained on December 5 on an ex parte basis freezes more than $2.7 million of defendants’ assets held in U.S. brokerage accounts and, among other things, grants expedited discovery and prohibits the defendants from destroying evidence.
The SEC’s investigation, which is continuing, has been conducted by Allison M. Fakhoury, Brian N. Hoffman, Steven L. Klawans, Delia L. Helpingstine, John E. Kustusch, Felisha K. Clay and Terri Y. Roberts in the Chicago Regional Office. The SEC’s litigation effort will be led by Benjamin J. Hanauer and Daniel J. Hayes. The Commission thanks the Financial Industry Regulatory Authority for its assistance in this matter.”
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