The regulator obtained a court order to freeze more than $29 million in U.S. accounts that allegedly are the illegal profits from an insider trading scheme related to Comcast’s acquisition of the DreamWorks Animation unit.
The SEC reports that it has secured an emergency court order freezing the brokerage accounts of Shaohua (Michael) Yin, who is accused of holding $29 million in “illegal profits from insider trading in advance of the April 2016 acquisition of DreamWorks Animation SKG, Inc. by Comcast Corp.”
Yin is a Wharton Business School graduate with residences in Beijing and Palo Alto, Calif., who worked for UBS Investment Bank and Warburg Pincus Asia LLC before becoming a partner in Summitview Capital Management Ltd., a Hong Kong-based private equity firm.
DreamWorks Animation SKG was originally part of DreamWorks SKG, the film and television production company founded by the titular SKG partners — Steven Spielberg, Jeffrey Katzenberg and David Geffen.
Comcast Corp., based in Philadelphia, has grown through mergers and acquisitions from a single cable system in Tupelo, Miss., in 1963, into the largest broadcasting and cable television company in the world by revenue in the 21st century. Its units include NBCUniversal, which in turn includes the NBC and Telemundo broadcast networks, a major-market TV station group, Universal Pictures and the Universal parks in California and Florida.
The acquisition gives Comcast a significant presence in the lucrative animation marketplace, and was widely seen in media circles as Comcast’s response to Disney’s acquisition of animation-leader Pixar, a decade earlier.
Upon the merger announcement, DreamWorks’ share price soared 47.3 percent, according to reports at the time.
According to the SEC complaint, filed in U.S. District Court in the Southern District of New York, Yin “amassed more than $56 million of DreamWorks stock in the U.S. brokerage accounts of five Chinese nationals, including his elderly parents, in the weeks preceding [the April 28, 2016] announcement of the acquisition.”
The Complaint
The SEC complaint alleges that the five accounts “reaped $29 million from the DreamWorks trades.”
The complaint also alleges that the accounts “profited from other suspicious trading in another U.S.-based company and three China-based companies ahead of market-moving news.”
(That additional alleged suspicious trading included “three China-based public companies … and just this past November, the accounts again engaged in suspicious and profitable trading in a different U.S. public company.… Returns from this additional trading constitute another $20 million in highly suspect trading profits. Although the five accounts had traded in over 200 different securities from account opening through the end of January 2017, trading in DreamWorks, 58.com, Ctrip, GiantInteractive, and Lattice constituted 97% of the accounts’ overall profits, even though those trades comprised just 3.2% of the total dollar amounts invested,” the SEC charges.)
Yin “allegedly did not trade in DreamWorks stock through his own account but instead traded through five accounts from addresses in Beijing and Palo Alto and on a computer that also accessed Yin’s email accounts,” according to the SEC.
“M.Yin traded in five brokerage accounts controlled by him, but nominally held by a group of defendants living in Beijing, China, including his elderly mother and father,” the commission alleges. “During that three-week period in April [preceding the announcement of the acquisition], the five brokerage accounts collectively bought nearly 2.15 million shares in DreamWorks. Before April 4, 2016, the accounts had never traded in DreamWorks.”
The purchases “cannot be explained by any publicly available news about DreamWorks in April [2016],” the commission declares.
The Five Individual Trading Accounts
“Placed in context, the purchases by these five individual trading accounts —nominally owned by two elderly retirees, an electrical company employee, a teacher and a natural resources manager — accounted for 16.9 percent of all market trading in DreamWorks. These trades … proved to be massively profitable,” the SEC says.
Then, on February 3, 2017, the FBI executed a search warrant on Yin at the San Jose, Calif. airport, “just before he boarded a flight to China,” the SEC complaint specifies. “From February 5 to 7, a flurry of activity in the five brokerage accounts ensued — a rash of serial withdrawal requests, stock sales, and communications to the brokerage firm hurriedly occurred. Altogether, M.Yin and/or relief defendants have attempted to withdraw more than $22 million from the five nominee accounts.”
On February 10, 2017, the U.S. district Court “granted the SEC’s request for an asset freeze of the five brokerage accounts and issued an order to show cause why an injunction and other relief should not be issued.”
The SEC, which acknowledged the assistance of the Financial Industry Regulatory Authority (FINRA) in the case, “charges Michael Yin with securities fraud and names the holders of the five brokerage accounts … as relief defendants [i.e., defendants who received funds or assets as a result of illegal acts by other defendants] … The SEC is seeking a permanent injunction, return of allegedly ill-gotten profits, civil money penalties, and other relief.”
“Despite the defendant’s alleged attempts to hide his control over these accounts, the SEC’s data analytic investigative tools enabled us to determine who was behind the suspicious trading,” Michele Wein Layne, director of the SEC’s Los Angeles regional office, says in a prepared statement. “Our action today shows that the SEC will not hesitate to freeze the assets of foreign traders when they use our markets to conduct illegal activity.”
FTF News addressed the following questions about the accusations to Yin’s email address (provided by the SEC):
- Do you have any comment about the charges?
- Did you in fact know about Comcast’s DreamWorks acquisition prior to the public announcement? Did you act on that knowledge?
- And particularly, how has your family has reacted to being involved in this insider trader case?
There was no immediate response.
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