As Comcast last year conducted secret talks about a potential acquisition of DreamWorks Animation, five Chinese investors — including an elderly couple in Beijing — acquired an enormous stake in the storytelling studio.
Over a three-week period ending on April 25, those five accounts purchased more than 2.1m DreamWorks shares, amounting to nearly 17 per cent of all trading in the stock, according to the Securities and Exchange Commission.
When news of Comcast’s $3.8bn purchase of DreamWorks broke on April 26, the Chinese investors reaped $29m in quick profits, the SEC says.
It was not just good luck. The accounts were controlled by Shaohua “Michael” Yin, a managing director at Hong Kong-based Summitview Capital Management, who co-ordinated their trading using inside information he had gained about the DreamWorks sale, according to the SEC complaint.
“The precision with which these trades were timed, combined with the sheer scale in which they occurred, could not be the product of chance,” the commission said in a civil complaint filed in federal court in Manhattan. “ . . . They proved to be massively profitable.”
The complaint charges Mr Yin, a 2005 graduate of the Wharton School of Finance, with securities fraud and names as relief defendants the account holders: Lizhao Su, 78, Mr Yin’s mother; Zhiqing Yin, 79, the defendant’s father; Jun Qin, 45, a quality manager at Legrand Electrical Co in Beijing; Yan Zhou, 33, a Beijing schoolteacher; and Bei Xie, 29, an employee of PetroChina Coalbed Methane Co.
Mr Yin, who splits his time between Beijing and Palo Alto, did not reply on Friday to an email requesting comment. Before joining Summitview, a private equity firm, he worked for UBS Investment Bank and Warburg Pincus Asia. According to his LinkedIn profile, he earlier worked at Microsoft as a software design engineer.
On February 3, as Mr Yin prepared to board a flight to China at San José International Airport, FBI agents confronted him with a warrant authorising a search of his mobile phone “for evidence of insider trading,” the complaint says.
The precision with which these trades were timed, combined with the sheer scale in which they occurred, could not be the product of chance
Mr Yin asked the agent if his accounts would be frozen. Over the next few days, Mr Yin and the others named in the court action tried to withdraw more than $22m from the accounts, it is alleged.
On Friday, the SEC said it had obtained a court order freezing $29m in the accounts, representing the illegal profits from Mr Yin’s alleged insider trading. The commission tied Mr Yin to the suspicious trading through a review of internet addresses used to place trades through the Chinese investors’ Interactive Brokers accounts, the complaint said.
The five accounts, which previously had never traded in DreamWorks, began acquiring shares immediately after PAG Asia Capital on April 4 offered privately to buy the company. The accounts bought DreamWorks shares on every trading day between April 4 and April 25, when rumours of a more lucrative Comcast deal went public, eventually emerging as one of the company’s 10 largest shareholders.
The SEC complaint says Mr Yin’s five accounts also profited from suspicious trading ahead of market-moving news in another US company, Lattice Semiconductor Corp, and three Chinese companies, 58.com, Ctrip.com and Giant Interactive Group.
“Despite the defendant’s alleged attempts to hide his control over these accounts, the SEC’s data analytic investigative tools enabled us to determine who was behind the suspicious trading,” said Michele Wein Layne, director of the SEC’s Los Angeles regional office, which led the probe.
The SEC is seeking a permanent injunction against Mr Yin along with disgorgement of his alleged insider trading gains and civil penalties. The commission wants the relief defendants, who are not accused of wrongdoing, to surrender profits from Mr Yin’s trading along with interest.
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