U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23403 / November 10, 2015
Securities and Exchange Commission v. Zhichen Zhou and Yannan Liu, Civil Action No. 15-CV-8796
SEC Charges Two with Insider Trading Prior to Announcements of Acquisitions
The Securities and Exchange Commission today announced insider trading charges and an emergency asset freeze based on trading in advance of the acquisition of two healthcare companies, MedAssets, Inc. and Chindex International Inc. The SEC alleges that Zhichen Zhou used funds provided by his cousin, Yannan Liu, to trade illegally, resulting in profits of approximately $300,000. The SEC further alleges that Liu, who was formerly employed by a private equity firm that was a bidder in both the MedAssets and Chindex International acquisitions, provided the non-public information about the acquisitions to Zhou. The announcement of the MedAssets acquisition, which occurred last week on November 2, 2015, caused the stock to rise more than 30%. Similarly, Chindex International's stock rose more than 13% on February 17, 2014, the date of the announcement.
According to the SEC's complaint, Zhou, a resident of Beijing, China, used a newly opened brokerage account to purchase almost 40,000 shares of MedAssets at a cost of nearly $900,000. Liu, a resident of Hong Kong, provided the bulk of the funds used to purchase the stock. The nearly $900,000 in purchases of MedAssets represented more than four times Zhou's stated net worth.
The SEC also alleges that Zhou illegally profited from trades in Chindex International based on information provided by Liu. In that instance, Zhou purchased more than 3000 shares leading up to the acquisition announcement and reaped profits of approximately $7,500.
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 Zhou'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 November 24, 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, was conducted by Frank Goldman and Jay Scoggins of the Denver Regional Office, with supervision by Thomas Krysa. The SEC's litigation is led by Dugan Bliss with supervision by Gregory Kasper. The SEC appreciates the assistance of FINRA.