SEC Charges Hong Kong-Based Trader with Misusing Inside Information in DreamWorks Purchases


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The SEC found it curious that brokerage accounts held by five Chinese nationals, including two elderly retirees, bought nearly 2.15 million shares of DreamWorks stock over a three-week period leading up to the company’s acquisition by Comcast.  The price of these securities rose 47.3 percent immediately after the companies announced the acquisition, yielding a profit of $29 million for the five accounts.

After an investigation conducted by the SEC’s Los Angeles Regional Office and the agency’s Market Abuse Unit, the SEC charged Shaohua (Michael) Yin, a partner at Summitview Capital Management Ltd., a Hong Kong-based private equity firm, with insider trading in a civil enforcement action filed in the U.S. District Court for the Southern District of New York. The SEC also named the five brokerage account holders as relief defendants, who received ill-gotten gains from the DreamWorks trades allegedly based on material nonpublic information, over which they had no legitimate claim.

The SEC based their complaint on the suspicious nature of trades in the accounts controlled by Yin, but did not identify the potential source of the inside information. According to the complaint, Yin had "numerous contacts in the business world through his employment and education at Wharton School of Business." The complaint alleged that “all material, nonpublic information that M. Yin received concerning the DreamWorks acquisition that was disclosed to him by any person was tipped by such person with the expectation of receiving a personal benefit, such person did in fact receive a personal benefit, and M. Yin knew of such personal benefit.”

It is likely that the SEC filed the action while the investigation is still active due to the exigent circumstances of the case. The FBI executed a search warrant on Yin at the San Jose International Airport just before he boarded a flight to China. Earlier this week, the brokerage accounts experienced serial withdrawal requests and stock sales.

According to the complaint, Yin and the relief defendants attempted to withdraw more than $22 million from the five nominee accounts in the last few days. District Judge J. Paul Oetken granted the SEC’s request for an asset freeze of the five brokerage accounts, which allegedly held more than $29 million in illegal profits. The court will hold a hearing on the matter on Feb. 17, 2017.

The five brokerage accounts controlled by Yin, which had never previously traded in DreamWorks securities, accounted for nearly 17 percent of all trading activity in DreamWorks stock in the three weeks leading up to the Comcast acquisition. On one day, the Yin accounts made up nearly 35 percent of the daily trading volume of DreamWorks stock.

The SEC argued that these purchases could not be explained by any publicly-available news about DreamWorks around the time of the trades. The company filed its annual report nearly two months earlier, and filed its Form 10-Q after the Yin accounts executed their trades. The company also announced no significant corporate developments during the three-week trading period.

"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.

In addition to the emergency freeze order, the SEC is seeking injunctive relief, a disgorgement order, civil money penalties, and other relief.

SEC v. Yin , Dkt. No. 17 cv 972 (S.D.N.Y. Feb. 9, 2017).