The U.S. Securities and Exchange Commission won a court order freezing assets of six Chinese citizens and a British Virgin Islands entity in an insider-trading case involving China-based pork processor Zhongpin Inc.
U.S. District Judge Matthew F. Kennelly in Chicago issued the restraining order requested by the SEC on April 4, without prior notice to those whose assets were frozen, according to an April 5 court filing.
The individual defendants and the offshore Prestige Trade Investments Ltd. made more than $9.2 million in profits on “eerily well-timed” purchases of call options and stock in Zhongpin, in the days and weeks before the company’s chairman announced a proposal to take the Nasdaq-listed company private, according to a court filing by the SEC.
The asset freeze was needed “to prevent a group of foreign traders from absconding with millions of dollars in illicit profits from insider trading that they conducted through their U.S.-based brokerage accounts,” the SEC said.
Xianfu Zhu, chairman and chief executive officer of the Changge, Henan-based company, on March 26 offered to purchase the company’s outstanding shares for about $418 million, or roughly $13.50 a share. He already owns about 18 percent of the business. The shares jumped 22 percent the following day.
“Defendants’ trading is highly suspicious and strongly indicates that defendants purchased securities while in possession of and based on material, nonpublic information,” according to the SEC.
Each of the defendants is a citizen of China or Hong Kong and lives outside the U.S., the SEC said.
Kennelly said the SEC had shown “good cause” to believe the defendants’ transactions had violated federal securities laws. He told them to repatriate to the U.S. any assets removed since March 27 within seven days of his order.
David Furbush, of Pillsbury Winthrop Shaw Pittman LLP, an attorney for defendant Siming Yang, didn’t immediately reply to a voice-mail message seeking comment. Attorney information for the other individual defendants wasn’t immediately available.
The case is U.S. Securities and Exchange Commission v. Yang, 12-cv-2473, U.S. District Court, Northern District of Illinois (Chicago).