The Securities and Exchange Commission announced insider trading charges against a research scientist who allegedly searched the internet for “how sec detect unusual trade” before making a trade that the agency flagged as suspicious through data analysis.
The SEC’s complaint alleges that Fei Yan loaded up on stocks and options in advance of two corporate acquisitions late last year based on confidential information obtained from his wife, an associate at a law firm that worked on the deals.
According to the SEC’s complaint, Yan made approximately $120,000 in illicit profits by selling his holdings in Mattress Firm Holding Corp. and Stillwater Mining Company following public announcements that they would be acquired by other companies.
Yan allegedly attempted to conceal his illegal activity by placing the illicit trades in a brokerage account bearing the name of his mother, who lives in China. Among the internet searches he conducted was “insider trading in an international account.”
Joseph G. Sansone, Co-chief of the SEC Enforcement Division’s Market Abuse Unit, said, “As alleged in our complaint, Yan attempted to evade detection by researching prior SEC cases against insider traders and using a brokerage account in a different name, but we identified the profitable trades in deals advised by the same law firm and traced them back to him.”
The SEC is seeking disgorgement of ill-gotten gains plus interest and penalties as well as permanent injunctions. The SEC’s complaint names Yan’s mother, Rongxia Wu, as a relief defendant for the purposes of recovering illicit profits in the brokerage account in her name.
In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Yan.
SEC Bars Advisor Who Bilked Former NBA Basketball Player Tim Duncan
The SEC announced that it has obtained a judgment and industry bar against Charles A. Banks IV, an Atlanta-based investment advisor charged with defrauding a former professional basketball player. In June, Banks was sentenced to prison.
According to the SEC's complaint, Banks fraudulently induced retired NBA star Tim Duncan to invest $7.5 million in a sports team apparel and merchandise company based on a series of misrepresentations about the investment and allegedly misappropriated funds from his client.
On April 3, Banks pleaded guilty to wire fraud in the U.S. District Court for the Western District of Texas predicated on some of the conduct alleged in the SEC's complaint. On June 28, Banks was sentenced to 48 months in prison and ordered to pay $7.5 million in restitution.
The SEC’s judgment, entered on July 5 by the U.S. District Court for the Northern District of Georgia, bars Banks from serving as an officer and director of a public company and orders Banks to pay disgorgement, prejudgment interest and a penalty with the amounts to be determined a later date upon a motion by the SEC. Banks also has consented to the entry of an SEC order that bars him from the securities industry.
SEC Announces Charges in Oil Well Offering Fraud
The SEC announced charges against a purported oil well company, its founders and three salespeople in connection with a $2.4 million offering fraud.
The SEC's complaint alleges that from approximately May 2014 to February 2016, Kentucky-Tennessee 50 Wells/400 BBLPD Block, Limited Partnership (K-T 50 Wells) fraudulently offered and sold unregistered securities to investors using a boiler room operation. According to the SEC, this operation raised approximately $2.4 million from 41 investors nationwide.
The complaint further alleges that Carol J. Wayland and her son, John C. Mueller, founded and operated K-T 50 Wells and conducted the offering through two other entities that they owned and controlled, HP Operations LLC and C.A.R. Leasing LLC.
To solicit investors, Wayland and Mueller allegedly set up a boiler room under the fictitious name of "Sahara Wealth Advisors" where they employed numerous salespeople, including Mitchell B. Dow, Barry Liss and Steve G. Blasko, all of whom allegedly had prior experience working in boiler rooms.
According to the SEC's complaint, K-T 50 Wells was supposed to develop and operate oil wells, but had little legitimate business activity. Wayland and Mueller allegedly misappropriated K-T 50 Wells investor money for purposes not disclosed in the K-T 50 Wells private placement memorandum, taking at least $871,463, or 36%, to pay for their personal expenses, and using investor money to make Ponzi payments to certain other K-T 50 Wells investors.
The complaint seeks permanent injunctions, disgorgement plus prejudgment interest, and civil penalties against all of the defendants.
SEC Charges Owner of Convenience Store in Louisiana With Insider Trading
The SEC announced fraud charges against Victory Ho for insider trading in the securities of The Shaw Group, Inc., a Louisiana-based energy construction company, ahead of a public announcement on July 30, 2012, that Shaw was going to be acquired by Chicago Bridge & Iron Co.
The SEC’s complaint alleges that during July 2012, Ho obtained confidential nonpublic information about the impending Shaw merger. Ho then used all of the money in a newly opened brokerage account, about $8,000, to purchase 296 Shaw short-term call options on the last trading day before the public announcement of the merger.
Prior to purchasing these options, Ho had multiple communications with two individuals who had personal relationships with a Shaw employee who had information concerning the merger. The SEC further alleges that Ho sold the options shortly after the announcement of the acquisition for a profit of approximately $295,000.
The SEC's complaint seeks a final judgment imposing a permanent injunction, disgorgement of his profits, prejudgment interest and a civil penalty.
---Related on ThinkAdvisor: