Litigation Release No. 22320 / April 6, 2012

Securities and Exchange Commission v. Siming Yang, et al. Civil Action No. 12 CV 02473 (N.D. Ill, filed April 4, 2012)


On April 4, 2012, the Securities and Exchange Commission charged six Chinese citizens and one British Virgin Islands entity with insider trading that resulted in illicit gains in excess of $9.2 million. The alleged insider trading occurred in the common stock and call options of Zhongpin Inc., a China-based corporation, in advance of a March 27, 2012, public announcement by Zhongpin that its Chairman and CEO, Xianfu Zhu, had made a non-binding offer to acquire all of Zhongpin's outstanding stock at $13.50 per share, a 46% premium over the previous day's closing price. Also on April 4, the SEC obtained an emergency court order freezing the defendants' assets.

The SEC's complaint, filed in U.S. District Court in Chicago, names Siming Yang, Prestige Trade Investments Limited (Prestige), Caiyin Fan, Shui Chong (Eric) Chang, Biao Cang, Jia Wu, and Ming Ni. The SEC alleges that they purchased substantial quantities of common stock and call options of Zhongpin in the two weeks before Zhongpin's March 27 announcement, and that the purchases were notably inconsistent with the Defendant traders' prior investment behavior, and inconsistent with their financial situations. The SEC alleges several aberrant features of Defendants' trading including:

  • The Defendants' trading made up a significant portion of the securities trading in Zhongpin during the two-week period. Prestige's purchases alone represented about 41% of the common stock trading volume in this period.
  • All but one of the traders had not placed any trades in Zhongpin before the timely trades.
  • For most of the individual defendants, the timely purchases of Zhongpin securities equaled or exceeded their stated annual income and represented a significant portion of their net worth.
  • Yang, who identified himself to his broker as an accountant in China with an income of $52,500 and a net worth of less than $250,000, formed Prestige in January 2012 and funded its U.S. brokerage account in March with $29 million transferred from a Hong Kong bank.
  • Contrary to the information Yang gave his broker, he was at the time a research analyst with a New Yorkâ€"based registered investment adviser.
  • Each of the defendants placed at least some of their trades from computer networks and hardware also used by other defendants to place trades.

The SEC alleges that the defendants each violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In addition to the emergency relief, the SEC seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties. The emergency court order that the SEC obtained on April 4 on an ex parte basis froze defendants' assets held in U.S. brokerage accounts and, among other things, granted expedited discovery and prohibited the defendants from destroying evidence. The investigation is continuing.

A hearing on the SEC's motion for preliminary injunction has been set for April 18, 2012 in the U.S. District Court for the Northern District of Illinois, Courtroom 2103, located at 219 South Dearborn Street, Chicago, Illinois, 60604.