SEC Obtains Final Judgments Ordering Payment of Over $75 Million in Stock Manipulation Scheme
Litigation Release No. 25421 / June 15, 2022
Securities and Exchange Commission v. Shuang Chen, et al., No. 19-cv-12127 (D. Mass. filed October 15, 2019)
The Securities and Exchange Commission announced that it obtained final judgments against sixteen defendants and ten relief defendants based in China for their role in a stock manipulation scheme that generated more than $35 million of illicit profits on the illegal trading of stock in at least 3,000 U.S.-listed securities. The final judgments ordered the defendants to pay over $73.5 million and the relief defendants over $1.5 million.
On October 15, 2019, the SEC charged eighteen traders in the scheme. The SEC's complaint alleged that the traders manipulated the prices of thousands of thinly traded securities by creating the false appearance of trading interest and activity in those stocks, thereby enabling them to reap illicit profits by artificially boosting or depressing stock prices. For example, according to the SEC's complaint, the traders used multiple accounts to place several small sell orders to drive down a stock's price before using a different set of accounts to buy larger amounts of the stock at the artificially low prices. After accumulating their position, the complaint alleged, the traders then flipped the script and placed several small buy orders to push up prices so they could then sell their stock at artificially high prices. On November 12, 2019, the court entered a preliminary injunction and continued an asset freeze against all defendants and relief defendants. On December 23, 2019, the SEC amended the complaint to add two defendants and eight additional relief defendants to those originally charged.
On June 9, 2022, the Court granted the SEC's motion for default judgment against sixteen defendants: Shuang Chen, Wenwen Du, Lirong Gao, Jing Guan, Tonghui Jia, Xuejie Jia, Honglei Shi, Lujun Sun, Huailong Wang, Jiadong Wang, Jiafeng Wang, Linlin Wu, Lin Xing, Yong Yang, Jiancheng Zhao, and Forrest (HK) Co., Limited, permanently enjoining each from violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Sections 9(a)(2) and 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Court also determined that all of these defendants are jointly and severally liable for disgorgement of ill-gotten gains of $35,603,447 plus $5,989,769 in prejudgment interest thereon, and each must pay a civil penalty of $2,000,000. Also on June 9, 2022, the Court granted the SEC's motion for default judgment against relief defendants Weiguo Guan, Jingquan Liu, Rishan Liu, Weigang Yang, Jingru Zhai, Song Geng, Qinghua Ren, Jixiang Teng, Xiangjia Yang, and Xiuchun Zhang, ordering disgorgement individually in amounts ranging from $3,505 to $533,713, plus prejudgment interest, for a total of $1,512,333.
Previously, in September 2021, the SEC secured a judgment by consent against trader defendant Xiaosong Wang, who agreed to be permanently enjoined from violating the antifraud provisions of Section 17(a) of the Securities Act and Sections 9(a)(2) and 10(b) of the Exchange Act and Rule 10b-5 thereunder, with disgorgement, prejudgment interest, and a civil penalty to be determined by the court at a later date. The SEC also continues to pursue fraud charges against trader defendant Jiali Wang.
A parallel criminal action brought by the U.S. Attorney's Office for the District of Massachusetts against Jiali Wang and Xiaosong Wang remains pending. The SEC's case against defendants Xiaosong Wang, Jiali Wang, and certain entities, which has been stayed pending the outcome of the criminal action, is being handled by Andrew Palid and Michele T. Perillo of the Market Abuse Unit in the Boston Regional Office.