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United States Securities and Exchange Commission v. Yang

United States District Court, N.D. Illinois, Eastern Division

November 14, 2013


Page 1008

For U.S. Securities and Exchange Commission, Plaintiff: Timothy Stewart Leiman, LEAD ATTORNEY, Jedediah Bradford Forkner, U.S. Securities & Exchange Commission, Chicago, IL; Jonathan Stephen Polish, U.S. Securities and Exchange Commission, Senior Trial Counsel, Division of Enforcement, Chicago, IL; Marlene Beth Key-Patterson, U.S. Securities & Exchange Commission (IL), Chicago, IL; Robert J Burson, Securities & Exchange Commission, Chicago, IL.

For Prestrige Trade Investments Limited, Defendant: Thomas More Leinenweber, LEAD ATTORNEY, Leinenweber Baroni & Daffada, LLC, Chicago, IL; Jonathan R Buck, Regina L. LaMonica, Perkins Coie LLC, Chicago, IL.

For Shui Chong (Eric) Chang, Defendant: Scott Jay Frankel, LEAD ATTORNEY, Robert R. Cohen, Frankel & Cohen, Chicago, IL.

For Siming Yang, Defendant: James L. Kopecky, LEAD ATTORNEY, Daryl M. Schumacher, Howard J. Rosenburg, Kopecky, Schumacher & Bleakley, P.C., Chicago, IL.


Page 1009


MATTHEW F. KENNELLY, United States District Judge.

The United States Securities and Exchange Commission (SEC) has sued Siming Yang, Prestige Trade Investments, and Shui Chong (Eric) Chang pursuant to sections 21(d), 21(e), and 21A of the Securities Exchange Act of 1934 (Exchange Act), 15 U.S.C. § § 78u(d), 78u(e) & 78u-1, and section 209 of the Investment Advisers Act of 1940 (Advisers Act), 15 U.S.C. § 80b-9. The SEC alleges that the defendants engaged in insider trading in the stock of Zhongpin Inc. in violation of section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5. The SEC also alleges that Yang ignored shareholder reporting requirements and engaged in " front-running," violating section 13(d) of the Exchange Act, 15 U.S.C. § 78m(d), and Rule 13d-1

Page 1010

thereunder, 17 C.F.R. § 240.13d-1; sections 206(1) and 206(2) of the Advisers Act, 15 U.S.C. § § 80b-6(1) & (2); and section 10(b) of the Exchange Act and Rules 10b-5(a), (b), and (c) thereunder, 17 C.F.R. § 240.10b-5(a), (b) & (c).

Yang, Prestige, and Chang have moved for summary judgment on all of the SEC's claims. For the reasons stated below, the Court denies defendants' motions.


The SEC's claims arise from the defendants' purchases of significant quantities of Zhongpin stock and call options shortly before the company announced on March 27, 2012 that it was going private. The announcement resulted in a significant increase in the price of Zhongpin's stock and in large (though unrealized) gains for the defendants. The SEC filed this suit on April 4, 2012 and, the next day, sought and obtained from the Court a temporary restraining order, later converted to a preliminary injunction, barring the defendants from realizing their gains.

From January 2008 through March 2012, Yang, a Chinese citizen, worked as a research analyst at a New York-based financial firm called Baron Capital, Inc., evaluating companies in China and other emerging markets. In November 2011, an account was opened in the names of Yang and Fan at Wang Investments, a U.S.-based brokerage firm. In January 2012, Yang formed Prestige, an investment firm of which he is director, part-owner, general manager, and investment adviser.

The next month, February 2012, Yang traveled to China, where he marketed Prestige to potential investors. He allegedly represented that Prestige would establish a diverse portfolio. Yang also conducted research on Zhongpin, a Chinese company that specializes in pork products and was listed on the American Stock Exchange. The SEC contends that Yang met with Zhongpin directors while in China.

On March 13, 2012, Yang opened a brokerage account in Prestige's name. At the time, Prestige had about $30 million in a bank account in Hong Kong. Yang transferred $29.7 million of it into Prestige's brokerage account in the U.S. and then used nearly all of it, $28 million, to purchase 3.2 million shares of Zhongpin stock between March 15 and March 21, 2012.

Between March 14 and March 26, 2,571 Zhongpin call options were purchased for the Yang / Fan account. Most of the options had a short expiration date (within a month of the purchase), and the overwhelming majority of them had a $10 strike price and were thus " out of the money," because the market price for Zhongpin stock was lower than that. In addition, 58,000 shares of Zhongpin stock were purchased for the Yang / Fan account during the same period, for a little over $500,000. The Zhongpin securities represented nearly all of the securities in the Yang / Fan account.

On March 27, 2012, Zhongpin announced that its management was proposing to take the company private by purchasing all of its stock at a price that represented a forty-six percent premium over its market price on that date. This led to an immediate twenty-one percent increase in the market price of Zhongpin stock.

Maggie Shum, a friend of Yang, placed the Zhongpin stock trades for Prestige, because Yang lacked the license needed to do so. During the relevant period, defendant Chang was in a long-term relationship with Shum. Shum told Chang that she was placing the trades for free, as a favor to Yang. The SEC alleges that Chang used information that he misappropriated from Shum to acquire a substantial amount of Zhongpin stock.

Page 1011

As indicated earlier, the SEC has asserted claims of insider trading against Prestige, Yang, and Chang and front-running against Yang. The defendants have moved for summary judgment. The Court will ...

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