On July 12, 2017, both the Department of Justice (“DOJ”) and Securities and Exchange Commission (”SEC”) filed insider trading charges against a research scientist who allegedly traded upon confidential information obtained from his wife. See Press Release, Manhattan U.S. Attorney And FBI Assistant Director Announce Insider Trading Charges Against Spouse Of Lawyer At International Law Firm, Rel. No. 17-213 (July 12, 2017), https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-and-fbi-assistant-director-announce-insider-trading-charges-0; Press Release, SEC Files Inside Trading Charges Against Research Scientist Aiming to Avoid SEC Detection, Rel. No. 2017-125 (July 12, 2017), https://www.sec.gov/news/press-release/2017-125. The DOJ’s criminal complaint includes two securities fraud charges and one wire fraud charge, seeUnited States v. Yan, 17-mag-5156 (July 12, 2017), while the SEC’s complaint charges violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Section 14(e) of the Exchange Act and Rule 14e-3 thereunder. SEC v. Yan et al., 17-cv-05257 (S.D.N.Y. July 12, 2017).
In its complaint filed in the Southern District of New York, the SEC alleged that Fei Yan, a research scientist, made approximately $120,000 in profits by trading on confidential information obtained from his wife, who worked as an associate at an international New York law firm. Specifically, the SEC alleged that Yan engaged in stock and option trades in advance of the acquisition of Mattress Firm Holding Corp. by Steinhoff International Holdings N.V. in August 2016 and the acquisition of Stillwater Mining Company by Sibanye Gold Limited in December 2016. On June 4, 2016, Yan allegedly opened a brokerage account in the name of his mother, Rongxia Wu, while his wife was working on the first merger. In the weeks leading up to the public announcement of that merger, Yan purchased 300 shares of the Mattress Firm stock in the Wu account and subsequently sold all of those shares the day after the public announcement of the acquisition. Later in 2016, Yan purchased 766 Stillwater call options. In the days leading up to the public announcement, Yan conducted internet searches that included “how sec detect unusual trade” and “insider trading with international account.” Yan sold his options for a profit of $109,700. The DOJ’s complaint solely involves the alleged conduct surrounding the Stillwater deal, and contains a more detailed timeline of the relevant events.
The SEC is seeking disgorgement of ill-gotten gains plus interest and penalties as well as permanent injunctions against Yan, while Yan faces potential terms of imprisonment if convicted of the criminal charges. The case reveals the ongoing focus of the SEC and the DOJ in pursuing insider trading cases, even where the alleged “loss” amount is relatively small—here, less than $200,000.
