SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 22194 / DECEMBER 15, 2011
SEC v. All Know Holdings Ltd, et al., Case No. 11 CV 8605 (N.D. Ill, filed December 5, 2011)
On December 15, 2011, the Securities and Exchange Commission announced that it filed new charges in its pending insider trading case against four Chinese citizens and a Chinese-based entity. On December 5, 2011, the SEC charged the defendants with insider trading after they reaped millions 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 amended complaint names new defendants Yonghui Zhang and Xuechu Yang along with the previously charged defendants Sha Chen, Song Li, Lili Wang, Zhi Yao, and All Know Holdings Ltd. The Court entered an emergency order freezing the assets of Yang and Zhang and continued the temporary restraining order freezing the assets of the previously charged defendants.
The SEC’s amended complaint alleges that the defendants purchased American Depository Shares (ADS) of Global Education in the two weeks leading up to a November 21 public announcement of a planned merger between the two education companies. Some of the defendants’ 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 $2.8 million.
According to the SEC’s amended complaint, filed in the U.S. District Court in Chicago, 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 the defendants made their purchases of Global Education’s shares while in possession of material, non-public information about the merger. Yonghui Zhang, a Global Education employee and brother of David Zhang, CEO of Global Education, purchased Global Education shares the last trading day before the merger announcement. Yang engaged in similarly suspicious trading in Global Education stock, which trades on NASDAQ and was typically thin.
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 asset freeze orders, the SEC seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties against all of the defendants. The emergency court orders that the SEC obtained on December 5 and 15 on an ex parte basis freeze more than $2.8 million of defendants’ assets held in U.S. brokerage accounts and, among other things, grant expedited discovery and prohibit the defendants from destroying evidence. The investigation is continuing.
A hearing on the SEC’s motion for preliminary injunction has been set for January 3, 2011 at 9:30 a.m. in the U.S. District Court for the Northern District of Illinois, Courtroom 1719, located at 219 South Dearborn Street, Chicago, Illinois, 60604.
For further information, see Litigation Release No. 22180 (Dec. 6, 2011).