SEC Charges Activist Investors for Participation in Undisclosed Plan to Replace the Board of China-Based Biopharmaceutical Company
May 13, 2020
File No. 3-19799
May 13, 2020 - The Securities and Exchange Commission today charged activist investor Jiaqiang "Chiang" Li and his firm for failing to disclose their increasing stake in shares of Sinovac Biotech Ltd., and their collaboration with other shareholders to replace nearly the entire board of the China-based biopharmaceutical company. Boston-based Li and his firm, 1Globe Capital LLC, agreed to pay a combined $290,000 in civil penalties to settle the charges.
The SEC's order finds that Li and his firm violated federal securities laws and SEC rules that require individuals or entities whose total ownership of a company's stock exceeds certain thresholds to disclose their ownership, intention to acquire additional shares, and plans regarding changes in company management or control. According to the order, Li and 1Globe Capital did not fully disclose to Sinovac investors and the company that they had acquired nearly one-third of Sinovac's common stock by January 2018, partly through Canadian brokerage accounts opened by Li's relatives and over which Li and 1Globe had or shared control. The order further finds that Li and 1Globe Capital had joined with shareholders who supported one of two rival groups seeking to take the company private and voted at the company's February 2018 annual meeting to replace four of Sinovac's five directors, without making required disclosures in advance of the meeting. The plan included, among other things, replacing a director with Li's relative and keeping "the whole thing strictly confidential from Sinovac." As a result of these disclosure failures, as the SEC's order finds, Sinovac investors were harmed by not having the benefit of knowing the large position Li and 1Globe accumulated and their participation in the plan to nominate and vote for an activist slate. Sinovac's common stock has since been subject to an indefinite trading halt based on the ongoing dispute between the company and activists regarding control of the board.
The SEC's order finds that Li and 1Globe Capital violated the disclosure provisions of the federal securities laws, and, without admitting or denying the findings, Li and 1Globe Capital agreed to cease and desist from future violations. Li further agreed to pay a penalty of $90,000, and 1Globe Capital agreed to pay a penalty of $200,000.
The SEC's investigation was conducted by Jonathan Cowen and John Bowers with assistance from Nicholas Panos from the Office of Mergers & Acquisitions and Owen Granke from the Office of International Affairs. The investigation was supervised by Jeffrey Weiss and Anita B. Bandy. The SEC acknowledges the assistance of the Ontario Securities Commission.