SEC Charges Former Qualcomm Executive and His Financial Advisor With Insider Trading Through Secret Offshore Accounts
The Securities and Exchange Commission today charged a former executive at Qualcomm Inc. and his former financial advisor with insider trading ahead of major announcements by the San Diego-based wireless technology company for more than a quarter-million dollars in profits.
The SEC alleges that Jing Wang, a former executive vice president and president of global business operations at Qualcomm, used a secret offshore brokerage account to make illegal trades based on confidential information that he learned on the job. Gary Yin, a former registered representative at Merrill Lynch, helped Wang set up the account. Yin also created a secret offshore account of his own and traded on the non-public information gleaned from Wang. When Wang eventually realized that insider trading in the offshore accounts still may be discovered by the SEC or other regulators, he concocted a plan to conceal his trading activity by claiming the trades were made by his brother. Wang even convinced Yin to travel to China and go over the account statements with Wang’s brother so he could explain the trades if asked by investigators.
“Wang violated his duty as an insider to protect confidential information when he made timely illegal trades ahead of major announcements to the detriment of other Qualcomm shareholders who did not have the same information,” said Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office. “Wang and Yin went to extraordinary lengths to conceal their trading and cover it up afterwards, but despite their expansive efforts they still wound up in law enforcement’s crosshairs.”
In a parallel action, the U.S. Attorney’s Office for the Southern District of California today announced criminal charges against Wang and Yin.
According to the SEC’s complaint, Wang and Yin became friends in 2005 as members of the same church. When Wang learned that Yin was a financial advisor at Merrill Lynch, he asked Yin to manage his money and opened a number of brokerage accounts at the firm’s San Diego branch office. Each account was disclosed to Qualcomm because, as a company officer, Wang was restricted in his ability to trade Qualcomm stock and required to pre-clear all Qualcomm trades with the company.
The SEC alleges that in early 2006, Wang approached Yin about hiding cash transactions. Yin suggested that Wang create an entity registered in the British Virgin Islands (BVI) and use the name of a non-U.S. citizen family member as the beneficial owner. Then he could open a brokerage account in the newly created entity’s name. Yin then helped Wang set up a secret account in the name of a BVI company called Unicorn Global Enterprises, and Wang’s older brother was listed as the owner. Yin similarly created his own BVI-registered entity named Pacific Rim and put it in his mother-in-law’s name. Yin opened a Merrill Lynch brokerage account for Pacific Rim and used it to hide funds that he was using for investments.
The SEC alleges that Wang and Yin used their secret offshore accounts to trade on material, non-public information that Wang learned as an executive at Qualcomm. In early 2010, Wang was aware that Qualcomm executives were planning a board proposal to increase Qualcomm’s quarterly dividends and request authority to initiate a stock repurchase program. Qualcomm informed Wang and all executives that they would not be permitted to trade Qualcomm stock. On March 1, Wang attended a Qualcomm board meeting where the quarterly dividend increase and stock repurchase were approved. Wang immediately instructed Yin to use all of the funds in the offshore Unicorn account to purchase Qualcomm stock. Yin knew that Wang did not pre-clear these trades and realized that the purchase was out of character for Wang because he previously never purchased Qualcomm stock on the open market in his Merrill Lynch accounts. Within the hour of executing the trades for Wang, Yin himself bought Qualcomm stock on the basis of the material, non-public information. The stock price increased 6.7 percent after Qualcomm publicly announced the quarterly cash dividend and stock repurchase program. Wang and Yin profited when they sold all of their shares.
According to the SEC’s complaint, Wang used the funds from that sale to conduct insider trading again – this time in the shares of San Jose-based Atheros Communications, which was the highly confidential target of a planned acquisition by Qualcomm. Wang was regularly briefed on the transaction internally tabbed as “Project Tango” to protect its confidentiality. Wang instructed Yin to sell all of his Qualcomm stock in the Unicorn account on Dec. 2, 2010, and prepare to buy as many shares of Atheros stock as possible with the funds in that account. He told Yin that he was leaving on a trip to China and would contact him to execute the Atheros trade. On December 6, Wang attended a Qualcomm board meeting in Hong Kong and a resolution was passed to pursue the acquisition. Wang learned that Qualcomm planned to acquire Atheros at $45 per share. Wang and Yin immediately communicated several times through phone calls and a text message, and Wang then purchased the maximum number of shares he could purchase with the existing funds in the Unicorn account at prices between $34 and $35 per share. At Wang’s encouragement, Yin also purchased Atheros stock for himself in his offshore account. When the news became public in early January, Atheros stock increased more than 20 percent. Yin sold all of his Atheros shares in the Pacific Rim account on January 12, and Wang sold his Atheros shares in the Unicorn account on January 25.
According to the SEC’s complaint, Wang took his next insider trading step merely four minutes after selling the Atheros stock, using the proceeds to purchase Qualcomm shares in advance of a company announcement that it would raise its revenue and earnings guidance for the 2011 fiscal year. Wang had learned the confidential information prior to the board meeting he attended in Hong Kong, where Qualcomm’s better-than-expected first quarter financial performance was further discussed. Wang learned that Qualcomm planned to announce its earnings results on January 26, and thus purchased his Qualcomm shares the day before the announcement. After Qualcomm issued a press release to announcing its positive first quarter results, Qualcomm’s stock increased 5.9 percent.
The SEC alleges that Wang made more than $244,000 in illegal profits through the insider trading scheme, and Yin realized gains of more than $27,000. Wang eventually realized that his illegal trading may be detected by Merrill Lynch or others. Wang first asked Yin to delete records of the trades in the Unicorn account, but because they were permanent records in Merrill Lynch’s systems they could not be erased. Around January 2012, Wang directed Yin to establish a new BVI corporation named Clearview Resources and open a new account at Merrill Lynch to which they transferred the insider trading proceeds in the Unicorn account to further distance Wang from the suspicious trades. A few months later, Wang informed Yin that the trades may have been detected because the SEC had subpoenaed his e-mails. So Wang devised a cover story and convinced Yin if ever questioned to say that the Atheros trades were made by Wang’s brother. Because Yin had never communicated with Wang’s brother, Wang instructed him to travel to China with the Unicorn account statements and review the trades with his brother so he could explain the trading if asked. Yin did so in May 2012. To further hide Wang’s ownership of the Unicorn account and his link to the Atheros trades, Yin removed the Unicorn account from Wang’s “household” in Merrill Lynch’s computer system in July 2012. “Householding” is a function used by Merrill Lynch to link related accounts.
The SEC's complaint charges Wang, who lives in Del Mar, Calif., with violating Sections 10(b) and 16(a) of the Securities Exchange Act of 1934 and Rules 10b-5 and 16a-3. Yin, who lives in San Diego, is charged with violating Section 10(b) of the Exchange Act and Rule 10b-5. The SEC’s complaint seeks disgorgement of ill-gotten gains plus prejudgment interest, financial penalties, and permanent injunctions. The SEC also seeks an officer-and-director bar against Wang.
The SEC’s investigation has been conducted by Ann C. Kim, Wendy E. Pearson, Nina Yamamoto, and Finola H. Manvelian of the Los Angeles Regional Office. The SEC’s litigation will be led by Sam Puathasnanon. The SEC appreciates the assistance of the Department of Justice’s Criminal Division, the U.S. Attorney’s Office for the Southern District of California, and the Federal Bureau of Investigation.