SEC Charges Former CFO and Six Relatives and Friends in California-Based Insider Trading Ring
FOR IMMEDIATE RELEASE
Washington, D.C., Oct. 30, 2009 — The Securities and Exchange Commission today charged the former chief financial officer of a San Francisco private investment firm and six of his relatives and friends with insider trading, alleging that their scheme collectively reaped more than $8 million in illicit profits from unlawful trades in the securities of Tempur-pedic International, Inc. and Acxiom Corporation.
The SEC alleges that Chen Tang of Fremont, Calif., learned non-public information as the CFO of a private equity fund and from illegal tips by his brother-in-law, who was the CFO of a venture capital fund. Tang and his trading partners, which included his brother and four friends, traded on the inside information through their personal brokerage and retirement accounts, the accounts of their spouses, children and relatives, and the accounts of several privately-offered investment funds that Tang and three of his friends managed.
"As the CFO of a private equity firm, Tang was entrusted with highly confidential and material information, and he violated that trust by misusing the information to generate enormous illegal profits," said Rose Romero, Director of the SEC's Fort Worth Regional Office.
The SEC's complaint, filed in the U.S. District Court for the Northern District of California, alleges that Tang learned confidential information in 2008 about an impending surprise pre-announcement that Tempur would not meet its earnings forecast. Tang illegally tipped the information to three of his friends — Joseph Seto of San Francisco, Ming Siu of Hayward, Calif., and Zisen Yu of Fremont. Tang and his friends began establishing short positions in Tempur securities and purchasing put option contracts that would only be profitable to the traders if Tempur's stock price declined. When Tempur made its pre-announcement, its stock price declined 37 percent and the traders closed all their short positions, garnering illegal profits of approximately $1.2 million.
The SEC alleges that Tang also became aware of plans by his firm to make a large, market-moving purchase of Tempur securities in the days following the pre-announcement. Based on this inside information, Tang and his friends purchased Tempur securities just before and during the transaction. On the same day that the firm completed its acquisitions of Tempur stock, Tang and his trading partners began selling their Tempur stock holdings. During the two-day period of the firm's stock purchases, Tempur's stock price increased approximately 18 percent. When they closed their positions, Tang and his friends obtained illegal profits of more than $800,000. During all relevant periods and at the time he traded, Tang was under express instructions from his firm not to trade Tempur securities.
The SEC also alleges that Tang separately received illegal trading tips in 2007 from his brother-in-law Ronald Yee, who also lives in Fremont. In his role as CFO at a venture capital fund, Yee learned that his firm planned to submit a bid to acquire Acxiom. Months later, after Acxiom and his firm had publicly announced a merger agreement, Yee learned that the deal was in jeopardy. As soon as Yee learned about each of these matters, in breach of his duties to the firm, he passed material, non-public information to Tang. Tang then tipped Seto, Siu and Yu as well as his brother James Tang of San Gabriel, Calif., and Yee's brother Eddie Yu of Fremont.
According to the SEC's complaint, Yee did not make any trades himself. But Tang and each of the others bought Acxiom securities based on Yee's initial tip about his firm's bid, and some of them took short positions in Acxiom based on the later tip that the deal was in jeopardy. Collectively, they realized profits of more than $6 million from their insider trading in Acxiom securities.
The SEC has charged the seven defendants with violating the antifraud provisions of the federal securities laws. In its complaint, the Commission requests that the court permanently enjoin them from future violations of the federal securities laws, and order them to disgorge ill-gotten gains with prejudgment interest and pay financial penalties.
The SEC also named 15 relief defendants in its complaint for the purpose of seeking disgorgement of ill-gotten gains in their possession. These include family members and funds whose brokerage accounts were used by the defendants in the illegal trading. The relief defendants are not accused of any wrongdoing.
The Commission acknowledges the assistance of the Chicago Board Options Exchange's Options Regulatory Surveillance Authority and the Financial Industry Regulatory Authority (FINRA).
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For more information about this enforcement action, contact:
Associate Director, Enforcement — SEC's Fort Worth Regional Office