The Securities and Exchange Commission has identified a China-based investment banker it says was in a position to send inside information to Shaohua “Michael” Yin, a Wharton MBA grad who with his partners made $30 million on DreamWorksSKG shares last year by buying them in the weeks before the movie studio was sold to Comcast Corp.
A second banker enabled Yin’s group to make $7 million more on illegal trades in Lattice Semiconductor Corp. before its sale to a Chinese investor, the agency said.
In a revised complaint filed in federal court in New York on May 30, the SEC identified Chaofeng Ji, managing director of China-based conglomerate Legend Holdings, as “one potential source of the material nonpublic information about the DreamWorks acquisition.” Legend, a government-backed, publicly traded company, is the controlling shareholder of computer manufacturer Lenovo,
In the revised suit, the SEC accuses Ji of “unjust enrichment.” Ji did not respond to efforts to reach him at Legend’s Beijing office. The SEC on May 31 issued a summons directing Ji to respond to its allegations within 21 days. As of Monday, no lawyer had registered to represent Ji in the case.
In its initial complaint in February, the SEC accused Yin of insider trading through accounts opened in the names of his parents and three others. The SEC said those accounts were used to buy millions of DreamWorks shares on margin as the studio was in sale talks, first with Chinese investors, and later with Comcast. Comcast heard DreamWorks was in talks through a lawyer, then outbid the Chinese investors and bought DreamWorks. The SEC said Yin controlled the accounts in the five investors’ names, and directed the insider trades.
In the revised complaint, the SEC says the investors include, besides Yin’s parents, a cousin of Yin’s, Yin’s children’s piano teacher, and a cousin of Ji’s. The SEC also says Ji’s firm was part of the group that was initially in talks with DreamWorks.
The SEC said Ji and Yin have been friends since working together at UBS Securities Hong Kong Ltd. The SEC says Ji last year put money into his cousin’s account, which Yin used to buy DreamWorks shares. At the time, Ji’s firm was working with the same China investors who were negotiating with DreamWorks to buy another U.S. company, Kentucky-based Lexmark International. Legend and its partners later agreed to buy Lexmark.
The SEC cited these facts for calling Ji a likely conduit for DreamWorks insider information: Jin’s and Li’s friendship; their common use of Ji’s cousin’s account; and the fact that Ji financed the purchase of DreamWorks shares “concurrent” with his work on the Lexmark deal with DreamWorks’ would-be Chinese buyers while Jin and Li were in “frequent phone and email content.”
The SEC also said an unidentified person it calls the “Canyon Bridge Insider” gave Yin inside information about China Reform Fund Management Co. Ltd.’s plan to buy another U.S. company, Lattice Semiconductor Corp. of Portland, Ore.
The insider, who worked for China Reform Fund, had worked with Yin at investment bank Warburg Pincus’ Hong Kong office and was a “social acquaintance” of Yin’s, according to the SEC. Phone records showed the insider and Yin spoke while Lattice was negotiating its possible sale with China Reform. That day Yin bought more than $1.3 million in Lattice shares. Yin spent millions more buying Lattice shares on margin, talking often with the insider, and buying shares. Finally, the insider set up Canyon Bridge Capital Partners Inc. and bought Lattice, boosting its share value and illegally enriching Yin, the SEC said.
In the initial federal lawsuit, the SEC had admitted having only circumstantial evidence — that Yin had “suspiciously” amassed DreamWorks shares with borrowed money, after confidential deal talks began, and then profited hugely when the deal got done. That was enough to enable the SEC in February to convince a judge to temporarily freeze $80 million in accounts which the SEC said Yin controlled.
Given the lack of harder evidence, Yin’s lawyers had asked the judge to unfreeze the accounts and throw out the SEC suit. But the SEC expanded its complaint May 30, one day before a court-imposed deadline, to identify Ji and the Canyon Bridge Insider as potential sources of Yin’s insider trading information.