United States District Court, N.D. Illinois
For U.S. Securities and Exchange Commission, Plaintiff: Benjamin J Hanauer, LEAD ATTORNEY, U.S. Securities & Exchange Commission, Chicago, IL; Allison Marie Fakhoury, Securities & Exchange Commission, Chicago, IL; Brian Neil Hoffman, Morrison & Foerster LLP, Denver, CO; Daniel J. Hayes, United States Securities and Exchange Commission, Senior Trial Counsel/Enforcement Division, Chicago, IL; Steven Lee Klawans, U.S. Securities & Exchange Commission (IL), Chicago, IL.
For All Know Holdings Ltd., Sha Chen, Zhi Yao, Defendants: Emily Randy Haus, Stacy Anne Howard, Loeb & Loeb LLP, Chicago, IL; Eugene Licker, Loeb & Loeb LLP, New York, NY.
For Song Li, Defendant: James Arthur McGurk, LEAD ATTORNEY, Law Offices of James A. McGurk, P.C., Chicago, IL.
For Lili Wang, Defendant: Andy Soh, PRO HAC VICE, William F. Mcgovern, PRO HAC VICE, Kobre & Kim Llp, New York, NY; Kurt Edward Stitcher, Faegre Baker Daniels LLP, Chicago, IL.
For Xuechu Yang, Defendant: Joseph Walker, PRO HAC VICE, Squire Sanders (U.S.) LLP, Washington, DC; Sharon Doherty Sirott, Squire Sanders & Dempsey LLP IL, Chicago, IL.
For Yonghui Zhang, Defendant: Lisa Marie Noller, LEAD ATTORNEY, Rebecca R. Hanson, Thomas Kelly Anderson, Foley & Lardner, Chicago, IL.
MEMORANDUM OPINION AND ORDER
Ronald A. Guzmán, United States District Judge.
The United States Securities and Exchange Commission (" SEC" ) sued Yonghui " Harry" Zhang, All Know Holdings, Ltd., Sha Chen, and Zhi Yao (collectively, " Defendants" ), among others, for insider trading in violation of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5. Defendants move for summary judgment. Zhang moves individually while All Know Holdings, Ltd., Sha Chen and Zhi Yao (the " All Know Defendants" ) move together. For the reasons stated herein, Zhang's motion is denied while the All Know Defendants' motion is granted.
Because the Defendants moved for summary judgment in two different groups, the Court will address the motions separately.
I. Summary Judgment Standard
A party may move for summary judgment on a claim or defense and the motion shall be granted " if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). To oppose a motion for summary judgment successfully, the responding party may not simply rest on its pleadings, but rather must submit evidentiary materials showing that a material fact is genuinely disputed. Fed.R.Civ.P. 56(c)(1). A genuine dispute of material fact exists when there is " sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In determining whether a genuine dispute of material fact exists, the court construes all facts and draws all reasonable inferences in favor of the nonmoving party. Id. at 255. It is not for the court at summary judgment to weigh evidence or determine the credibility of a witness' testimony. O'Leary v. Accretive Health, Inc., 657 F.3d 625, 630 (7th Cir. 2011).
Zhang is a United States citizen who currently resides in Beijing, China. (Pl.'s LR 56.1(b)(3)(B) Resp., Dkt. # 156, ¶ 1.) He was born in China and received a Bachelors degree in Biology from the University of Science and Technology in Hefei, China and a Doctoral degree in Pathobiology from Columbia University (" Columbia" ) in New York in 1996. ( Id. ¶ ¶ 2, 3.) After performing postdoctoral research and working at both Albert Einstein College of Medicine and Columbia, Zhang returned to China in October 2010 to start his own gene diagnostics company. ( Id. ¶ ¶ 4-6.) Beginning in November 2010, while he applied for funding for his company, Zhang also worked full time for Global Education & Technology Group, Ltd. (" GEDU" ) in China. ( Id. ¶ 6.) GEDU was founded by Zhang's younger brother, Yongqi " David" Zhang and David's wife, Xiadong " Veronica" Zhang. ( Id. ¶ 7.) Prior to joining GEDU on a full-time basis, Zhang worked for GEDU on an intermittent basis between 2007 and 2010 and gave himself the title of " Executive Director." ( Id. ¶ 8.) While the parties dispute whether
Zhang ever had any involvement in GEDU's financial decisions, they agree that he held the position of Chief Consultant -- Overseas Study Division while at GEDU, providing advice to GEDU's student-clients about higher education in the United States, both in one-on-one consultations and at seminars sponsored by GEDU. ( Id. ¶ ¶ 8-11.)
On November 21, 2011, Pearson plc and GEDU publicly announced they had reached an agreement for Pearson to acquire GEDU (the " Pearson Acquisition" ). ( Id. ¶ 12.) GEDU's American Depository Shares (" ADS" ) traded on the NASDAQ. (Def.'s Resp. Pl.'s Stmt. Add. Facts, Dkt. # 170, ¶ 1.) On the last trading day before the Pearson Acquisition was announced, Zhang purchased 7,900 GEDU ADSs in his E*Trade brokerage account for approximately $39,500.00. ( Id. ¶ 5.) Zhang had never before bought GEDU stock for himself ( Id. ¶ 6.) As a result of this trade, Zhang made a profit of over $47,000.00. ( Id. ¶ 7.)
" A person is liable for insider trading when he obtains (a) material, (b) nonpublic information intended to be used solely for a proper purpose, and then (c) misappropriates or otherwise misuses that information (d) with scienter, (e) in breach of a fiduciary duty, or other duty arising out of a relationship of trust and confidence, to make 'secret profits.'" SEC v. ...