U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23249 / April 29, 2015
Securities and Exchange Commission v. Xiaoyu Xia and Yanting Hu, Civil Action No. 15-CV-3320
SEC Charges Two with Insider Trading On Chinese Internet Company 58.Com Merger News
The Securities and Exchange Commission today announced insider trading charges and an emergency asset freeze based on trading prior to the announcement of a merger between two Chinese e-commerce companies, 58.com and ganji.com. When the merger was reported on April 14, 2015, the share price of 58.com increased by more than a third, and trading volume increased more than twenty-fold.
The SEC alleges that Dr. Xiaoyu Xia and Ms. Yanting Hu, residents of Beijing, China, each purchased out-of-the-money call options in 58.com in the time period between when 58.com, ganji.com, and 58.com's largest shareholder, Tencent Holdings, agreed to the merger and when the merger was first reported on April 14, 2015. The defendants each traded through U.S. brokerage accounts and their purchase of speculative, out-of-the-money call options in 58.com resulted in combined realized and unrealized profits totaling over $2 million. Defendants are both connected to the financial industry in China.
The United States District Court for the Southern District of New York granted the SEC's request for an asset freeze against monies held in Xia and Hu's United States brokerage accounts, and issued an order to show cause why an injunction and other miscellaneous relief should not issue. A hearing has been scheduled for May 6, 2015.
The SEC's complaint charges the defendants with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC seeks permanent injunctions, disgorgement, civil money penalties, and other relief.
The SEC's investigation, which is continuing, has been conducted by L. James Lyman and Jeffrey D. Felder of the Denver Regional Office, with supervision by Ian S. Karpel. The SEC's litigation is led by Dugan Bliss with supervision by Gregory Kasper.