SEC Charges Chinese Citizens Over Alleged $29M Insider Trading Tied to Comcast-DreamWorks Acquisition

The US Securities and Exchange Commission is charging the partner of a Hong Kong-based private equity firm with securities fraud. The regulator claims that Shaohua (Michael) Yin of Summitview Capital Management Ltd. obtained over $56M of DreamWorks Animation SKG stock by using the US brokerage accounts of five Chinese nationals, including his parents.

When DreamWork’s stock price went up 47.3% after news that Comcast was acquiring it went public, the five accounts made $29M from the DreamWorks trades.

The SEC claims that Yin tried to conceal that he was in charge of the five accounts, which had addresses in Palo Alto and Beijing, but the regulator was still able to identify him as the one behind the suspect trading. Prior to becoming a partner at Summitview Capital, Yin worked for UBS (UBS) and private equity firm Warburg Pincus Asia LLC.

Now, the SEC has an emergency court order to freeze the brokerage accounts. The holders of the five accounts are named as relief defendants.

The regulator’s complaint also claims that the five accounts made money from other suspect trades involving three companies based in China and another in the US “ahead of market-moving news.”

In other insider trading news, a federal judge has turned down Galleon Group funder Raj Rajaratnam’s efforts to reduce his 11-year prison sentence and nullify most of his insider trading conviction. According to prosecutors, the hedge fund manager made up to $63.8M by insider trading in stocks like Goldman Sachs Group Inc. (GS.N), eBay, and Google. In 2011, he was convicted on multiple conspiracy and securities fraud counts.

Rajaratnam, who is eligible for release in 2021 and has already served more than 5 years of his sentence, wants his sentence reduced because he claims that he didn’t give benefits to the insiders that provided the confidential information involving certain trades nor was he aware that these insiders were giving the information to receive a benefit. However, a US Supreme Court ruling in December found in another case that gifts of confidential information may violate securities laws even if there were no tangible benefits involved.

In Rajaratnam’s case, U.S. District Judge Loretta Preska in Manhattan said that seeing as all information provided for insider trading was between friends or relatives, just sharing the information was enough count as a benefit. She also said that Rajaratnam knew that the information was being bestowed for the purpose of benefit.

The SEC Complaint in the Yin Case (PDF)

Rajaratnam’s Bid To Shorten Insider Trading Sentence Rejected By Judge, Finalternatives.com

Raj Rajaratnam — Galleon Group Founder Convicted in Insider Trading Case, NY Times