Tiger Asia Management LLC, the New York-based hedge fund run by Bill Hwang, admitted illegally using inside information to trade Chinese bank stocks and agreed to criminal and civil settlements of more than $60 million.
Hwang entered the guilty plea for Tiger Asia yesterday in federal court in Newark, New Jersey, admitting it used material nonpublic information by selling short shares of Bank of China Ltd. and China Construction Bank Corp. Tiger Asia agreed to forfeit $16.3 million to resolve the criminal case.
Tiger Asia Management, Hwang, Tiger Asia Partners LLC and former head trader Raymond Y.H. Park also will pay $44 million to settle a U.S. Securities and Exchange Commission lawsuit filed yesterday. Tiger Asia used inside information received through private placement offerings to engage in short selling of the two banks, the agency said.
“Hwang today learned the painful lesson that illegal offshore trading is not off limits from U.S. law enforcement,” Robert Khuzami, the SEC enforcement director, said in a statement yesterday.
U.S. District Judge Stanley Chesler placed Tiger Asia on probation for one year. He said the $16.3 million represents the total illicit gain in the criminal case for the trades in December 2008 and January 2009.
“Tiger Asia regrets the actions for which it accepts responsibility today and is grateful that this matter is now resolved and behind it in the U.S.,” Hwang said in a statement yesterday. Hwang, 48, lives in Tenafly, New Jersey.
Tiger Asia’s attorney Lawrence Lustberg told Chesler that the entire criminal forfeiture was paid yesterday.
“It reflects a just resolution of this matter,” Lustberg told the judge. All investor capital has been returned, he said in an interview.
Park, 40, of Riverdale, New York, is “happy to put this matter behind him,” his attorney, Steven Glaser, said in an e-mail.
Paul Fishman, the U.S. attorney in New Jersey, said Tiger Asia was entrusted with confidential information and violated that trust by “illegally trading millions of shares of the company’s stock for huge profits.”
In pleading guilty, Hwang admitted that on three occasions, investment bankers approached Park to gauge Tiger Asia’s interest in joining a block sale of stock. Each time, Park agreed to be brought “over the wall,” meaning Tiger Asia would keep the information confidential and not trade on it, he said.
Hwang admitted that Tiger Asia sold short 87 million shares of Bank of China stock, making $3.2 million in illicit profit; sold short 93 million shares of China Construction Bank stock, making $7 million; and sold short another 282 million shares of Bank of China stock, making $5.7 million.
Tiger Asia Management and Tiger Asia Partners covered their short positions with private placement shares bought at a discount, according to the SEC. Hwang, Tiger Asia Management and Tiger Asia Partners, aided by Park, also engaged in a manipulative trading scheme that generated $496,000 in phony management fees, the agency said.
As part of the SEC settlement, Hwang, Tiger Asia Management and Tiger Asia Partners agreed to give up $19 million in illegal gains and interest. Each also agreed to pay $8.3 million in penalties, totaling $24.9 million. Park agreed to pay $39,819 in illicit gain and interest, along with a $34,897 penalty. All except Tiger Asia Management denied wrongdoing.
In August, the hedge fund said it was returning outside capital to investors amid a three-year probe by Hong Kong regulators. The fund, founded in January 2001, had produced annual returns averaging 16 percent since inception.
Hong Kong’s Securities and Futures Commission alleged the hedge fund traded on inside information from bankers arranging placements of China Construction Bank and Bank of China shares in 2008 and 2009, pocketing HK$38.5 million ($5 million).
Tiger Asia, which has no employees and physical presence in Hong Kong, denied the allegations in an Oct. 12, 2010, letter to investors. The firm told clients later that month that it had received a subpoena from the SEC following the allegations by the Hong Kong regulator.
Hong Kong proceedings are continuing, according to Ernest Kong, a spokesman for the SFC. Alan Linning, a lawyer for Tiger Asia in Hong Kong, didn’t immediately respond to a phone call or e-mail seeking comment.
Hong Kong’s SFC in February won a ruling against Tiger Asia establishing the regulator’s power to independently seek civil remedies for market misconduct. The Chinese city’s Court of Final Appeal in April agreed to hear Tiger Asia’s appeal.
Separately today, Japan’s Securities and Exchange Surveillance Commission recommended a 65.7 million yen ($786,000) fine against Tiger Asia Partners, saying its executives in March 2009 attempted to manipulate the share price of Yahoo Japan Corp., according to a SESC statement distributed at a press briefing in Tokyo.
The fine is the biggest ever recommended by the SESC for conducting unfair trades, a commission official said. The investigative arm of Japan’s Financial Services Agency said it based its findings on cooperation with the U.S. SEC.
Hwang earned an undergraduate degree in economics from the University of California, Los Angeles, and a master’s in business administration from Carnegie Mellon University in Pittsburgh.
In the early 1990s, he was an institutional stock salesman at Hyundai Securities Co., where he dealt with Julian Robertson’s Tiger Management LLC.
Robertson, a pioneer and mentor in the hedge-fund industry, hired him in 1995 after Hwang won an annual prize awarded to the person outside of Tiger who had contributed most to the fund’s success.
Robertson built Tiger Management into one of the world’s largest hedge funds by generating average annual returns of 32 percent, lifting his assets under management to $22 billion by mid-1998. After customer defections and losses cut Tiger’s assets to $6 billion two years later, Robertson decided to return money to clients and employ Tiger Management to invest his own fortune in hedge-fund managers, taking a share of profits in exchange.
Tiger Management has employed at least 40 portfolio managers and analysts who subsequently formed their own firms and became known as Tiger “cubs.” Those he seeded after 2000 with his own capital are known as “grand cubs.”
The Hong Kong case is Securities and Futures Commission and Tiger Asia Management LLC, Sung Kook Hwang Bill, Raymond Park, William Tomita, CACV178/2011 in the Hong Kong Court of Appeal.