The Securities and Exchange Commission (SEC) recently secured an emergency court order effectively freezing several securities brokerage accounts comprised of more than $29 million in alleged illegal profits from claimed insider trading in connection with Comcast Corp.’s 2016 acquisition of DreamWorks Animation SKG, Inc.
The SEC asserts that in the weeks prior to the announcement of the acquisition, Shaohua (Michael) Yin accumulated in excess of $56 million of DreamWorks stock in five U.S. brokerage accounts in the names of Chinese nationals, including his elderly parents. DreamWorks stock price spiked 47.3% when the acquisition was publicly released.
In its complaint, the SEC alleged the five brokerage accounts generated $29 million in profits from the DreamWorks securities transactions, and profited from suspicious trading in other companies in advance of material, non-public information.
Yin, according to the SEC, intentionally did not trade through his own accounts, but rather used accounts in others names, in an attempt to shield his control over and involvement in the alleged illegal insider trading. The SEC, utilizing its data analytic investigative tools, was able to trace the insider trading to Lin.
The SEC’s Complaint, consistent with the relief the SEC typically seeks in its insider trading cases, asks the Court for a permanent injunction, disgorgement of illegal trading profits, prejudgment interest and civil penalties.
While there is nothing especially unusual about this SEC insider trading enforcement case, a few observations for consideration:
First, the SEC’s insider trading charges in this case demonstrate its continued willingness and ability to seek and obtain emergency asset freeze orders of profits of those foreign nationals who access US financial markets to engage in unlawful insider trading.
Second, the SEC (as apparently occurred here) will not sit content and focus solely upon the subject company stock and announcement that led to the filing of the case. Instead, either during the investigation or through the course of the litigation, the SEC may potentially go back in time and examine all suspicious trading, whether it be prior trades involving the same company but different corporate news events, and/or different companies involving other time-frames and announcements.
Third, FINRA likely was the originating source of the case, as indicated by the SEC acknowledgement in its press release of its assistance in the matter. While the SEC continues to develop, improve and refine its big data analytics, which allows it to identify suspicious trading patterns and then target potentially culpable insider traders, the SEC nonetheless still relies on FINRA as a front-line originator of insider trading investigations. FINRA, alerted by unusual volume trading ahead of corporate announcements, will commence an inquiry and obtain from the company (issuer) data indicating who in the company knew what and when, coupled with relationships between those corporate insiders and those members of the public who traded in the stock during the weeks or days in advance of the material, non-public information. Armed with this critical data, coupled with subpoena power, the SEC is then in a pristine position to begin identifying target traders followed by the securing of their records and the taking of their sworn investigative testimony.
Finally, on a bit of a lighter note, this case strongly suggests that if you are going to risk engaging in insider trading and try to get away with it, you probably shouldn’t use your elderly parents’ brokerage account to do so.
David Chase is a SEC defense attorney and former SEC Prosecutor who represents and defends those around the world who are being investigated or prosecuted for insider trading in SEC investigations or insider trading criminal cases. Mr. Chase is the principal of the Law Firm of David R. Chase, a SEC law firm, located in Fort Lauderdale, Florida. For a confidential consultation, you may contact Mr. Chase at: david@davidchaselaw.com or toll-free at: (800) 760-0912. The law firm’s website is:securitiesfrauddefense.net.
