SEC alleges insider trading at Zhongpin Inc.
April 9, 2012
by Meat&Poultry Staff
WASHINGTON – The Securities and Exchange Commission received a court order to freeze the assets of six Chinese citizens and one British Virgin Islands entity on charges of insider trading in Zhongpin Inc., a large China-based pork processor whose shares trade in the US.
The SEC alleges in its complaint that the purchases of Zhongpin stock and options were inconsistent with the defendants’ financial situations and prior investment behavior. The emergency court order froze defendants’ assets held in US brokerage accounts. It also granted the agency expedited discovery and prohibited the defendants from destroying evidence.
“The defendants in this action – all with seemingly limited resources - suddenly and inexplicably purchased more than $20 million in Zhongpin securities just before an important public announcement,” said Merri Jo Gillette, director of the SEC’s Chicago Regional Office. “The SEC’s swift action to secure a judicial freeze order prevented millions of dollars from moving offshore.”
The SEC complaint, which was filed April 6, alleges the defendants made more than $9 million by trading in Zhongpin stocks ahead of a March announcement by the company’s president to take the company private, the agency said. The defendants named in the complaint are Prestige Trade Investments Ltd., and six individuals, Siming Yang, Caiyin Fan, Shui Chong (Eric) Chang, Biao Cang, Jia Wu, and Ming Ni. The SEC alleges that Yang formed Prestige in January and funded its US brokerage account in March with $29 million transferred from a Hong Kong bank.
The seven defendants bought substantial quantities of common stock and call options in Zhongpin between March 14 and March 26, according to the SEC complaint. Zhongpin’s stock price rose sharply by 21.8 percent on March 27 when Xianfu Zhu, chairman and chief executive officer of the company, publicly announced that he had made a non-binding offer to acquire all of Zhongpin’s outstanding stock at $13.50 a share, a 46 percent premium over the previous day’s closing price.
The SEC alleges that the defendants violated US anti-fraud laws. In addition to the court order to freeze assets, the SEC is seeking permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties.