On Friday, the SEC charged the former CFO of a San Francisco private equity firm and six of his relatives and friends with insider trading. The SEC alleged that the defendants collectively made more than $8 million in illicit profits from trades based on inside information.
The SEC alleges that Chen Tang obtained nonpublic information as the CFO of a private equity fund and from illegal tips by his brother-in-law, who was the CFO of a venture capital fund. In 2008, the agency claims, Tang learned confidential information about a pending surprise preannouncement that Tempur would not meet its earnings forecast, and tipped the information to three of his friends. Tang and his friends then allegedly began establishing short positions in Tempur securities and purchasing put option contracts in anticipation that the stock price would decline. The SEC alleges that when Tempur preannounced its weak earnings, its stock price declined 37% and the traders closed all their short positions, making profits of approximately $1.2 million.
The SEC also alleges that Tang became aware of plans by his firm to make a large, market-moving purchase of Tempur securities in the days following the preannouncement. Based on this information, Tang and his friends purchased Tempur securities just before and during the transaction. Then, on the day that his firm completed its acquisitions of Tempur stock, Tang and his trading partners allegedly sold off their Tempur stock holdings, profiting more than $800,000.
Finally, the SEC alleged that Tang received illegal trading tips in 2007 from his brother-in-law, Ronald Yee, who was CFO at a venture capital fund. Yee learned that his firm planned to submit a bid to acquire Acxiom Corp. Months later, after Acxiom and his firm had publicly announced a merger agreement, Yee learned that the deal was in jeopardy. Yee shared all of this nonpublic information with Tang, and Tang and his friends bought Acxiom securities based on Yee’s initial tip about his firm’s bid. Some of them also took short positions in Acxiom based on the later tip that the deal was in jeopardy. Collectively, the SEC alleges that they realized profits of more than $6 million from their insider trading in Acxiom securities.