U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23020 / June 12, 2014
Securities and Exchange Commission v. Luis Chang and Everbright Development Overseas Limited, Civil Action No. 1:14-cv-04132 (U.S. District Court for the Southern District of New York, filed June 9, 2014)
SEC Obtains Asset Freeze and Other Emergency Relief in Fraudulent Tender Offer Scheme
The Securities and Exchange Commission filed an emergency action ex parte against Luis Chang and Everbright Development Overseas Limited. The Commission alleges that Defendants Chang and Everbright victimized an American mining company, Allied Nevada Gold Corporation (“Allied Nevada”), by furtively buying up its stock, intentionally disseminating false press releases about a potential tender offer for the mining company, and then selling its shares into a market inflated by their fraudulent scheme.
According to documents filed simultaneously with the Commission’s complaint in federal court in Manhattan, Defendants Chang and Everbright were actively attempting to liquidate their U.S. assets. They were also wiring assets offshore. The Honorable Edgardo Ramos granted the SEC’s emergency request to preserve these assets by issuing a temporary asset freeze order.
The Commission alleges that on the evening of January 14, 2013, Defendant Luis Chang, claiming to be the agent of a Chinese mining company called China Gold Stone Mining Development Limited (“China Gold”), caused Christopher J. Baclawski, a self-described investment banker, to send a letter on China Gold’s behalf to Allied Nevada’s management proposing to make a cash tender offer. At 6 a.m. the next morning, Defendant Chang used Baclawski to issue a press release announcing that China Gold had “commenced” a cash tender offer for Allied Nevada. Allied Nevada’s stock price and trading volume immediately surged in reaction to the press release. No public information supports the claims Defendant Chang made about China Gold, namely that China Gold was a Hong Kong mining company that owned three gold mines in China worth $15 billion and possessed the capital to make a cash tender offer for Allied Nevada.
The Commission further alleges that unbeknownst to Allied Nevada and the investing public, Defendant Chang, while driving the purported tender offer, had bought over 5% of the Allied Nevada stock through an entity he controls, Defendant Everbright Development Overseas Limited. Defendant Everbright sold its entire position in Allied Nevada into a falsely inflated market for a profit of over $7 million. Defendant Chang is now on the run in China, where Defendant Everbright has wired over $20 million.
The court’s order, among other things, temporarily freezes the Defendants’ assets, temporarily restrains them from further similar misconduct, requires an accounting, prohibits document alteration or destruction, and expedites discovery. Pursuant to the order, the Commission has taken immediate action to freeze the Defendants’ U.S. assets, which include financial accounts and several properties in Nevada and California.
The Commission's complaint alleges that Chang and Everbright violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder, and Section 13(d)(1) of the Exchange Act and Rule 13d-1 thereunder. The Commission’s complaint also alleges that Chang violated Section 14(e) of the Exchange Act and Rule 14e-8 thereunder. The Commission’s complaint further alleges that, by virtue of his status as Everbright’s control person, Chang is liable under Section 20(a) of the Exchange Act for Everbright’s Exchange Act violations. The Commission’s complaint seeks disgorgement of ill-gotten gains, financial penalties, permanent injunctions, and other emergency relief.The Commission’s investigation of this matter is continuing.