SEC Charges Acquisition Advisor with Insider Trading

Litigation Release No. 24269 / September 14, 2018

Securities and Exchange Commission v. Rong Chen, et al., No. 2:18-cv-07840-CAS (JPRx) (C.D. Cal. filed September 10, 2018)

The SEC filed insider trading charges on September 10, 2018 against a corporate deal advisor for trading in securities of two China-based companies based on confidential information about their impending acquisitions. As alleged in the SEC's complaint, Rong Chen obtained this inside information in the course of his work advising the acquiring companies on these transactions and used an account bearing his wife's name in order to conceal the illicit trades. The SEC also charged Chen's wife, Yuehong Wang, as a relief defendant.

According to the SEC's complaint, filed in federal court in Los Angeles, Chen was Vice President of Investments for Tsinghua Unigroup Limited during its 2014 acquisition of RDA Microelectronics Inc. and learned of the deal before it was announced. The SEC's complaint alleges that shortly before the November 11, 2013 announcement, Chen opened a brokerage account in his wife's name and used that account to make a series of well-timed purchases of RDA securities ahead of the announcement to generate more than $79,500 in trading profits. The SEC further alleges that when Chen later became Managing Director at a Hong Kong-based investment banking firm advising Inc. on its April 2015 acquisition of rival, he again used his wife's brokerage account to commit insider trading, buying high risk call options, which he sold after news of the acquisition for profits of more than $94,400.

The SEC's complaint charges Chen with violating Section 10(b) of the Securities Act of 1934 and Rule 10b-5 thereunder. The complaint seeks disgorgement of ill-gotten gains, jointly and severally from Chen and Wang plus prejudgment interest, and a penalty from Chen.

The SEC's investigation has been conducted by Marcus Fruchter and Amy Flaherty Hartman of the SEC's Cyber Unit in the Chicago Regional Office and David Makol and John Rymas of the Market Abuse Unit's Analysis and Detection Center. The case has been supervised by Joseph Sansone, Chief of the Market Abuse Unit, and Kathryn Pyszka, an Associate Regional Director in the Chicago Regional Office. The litigation will be led by Benjamin Hanauer and Marcus Fruchter. The SEC appreciates the assistance of the Financial Industry Regulatory Association.