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 In a statement on Tuesday, the Securities and Exchange Commission
(SEC) said Guangzhou resident Luo Haijian made more than $1 million
trading options in Qihoo ahead of the news last week that the
Chinese tech company had received a buyout offer at a 16.6 percent
premium to its June 16 closing price.
In a New York court filing, the SEC says 33-year old Luo, who is the
chief executive of 4399 Co Ltd, bet Qihoo's stock price would rise
in the short term by purchasing $700,000 of "out of the money" call
options through a U.S. brokerage account prior to the buyout
announcement.
Qihoo received the buyout offer on June 17 from a consortium led by
its chairman and CEO Hongyi Zhou, adding the mobile security
software maker to a long list of Chinese tech companies that have
received offers to drop their New York listings and head back home.
Qihoo's stock opened 9 percent higher on the news.
Luo subsequently sold all his call options and asked his broker to
transfer $600,000 of his proceeds to a Singapore bank account,
according to the SEC complaint seeking the asset freeze injunction.
"The suspicious timing and size of Luo's trades spurred us to move
swiftly to freeze his proceeds and ensure that potentially illegal
profits cannot be siphoned out of this account beyond a U.S. court's
jurisdiction while our investigation continues," Andrew Calamari,
regional director of the SEC's New York office, said in an SEC
statement.
TIPPED OFF
Luo, who had no prior history of trading Qihoo securities using the
U.S. brokerage account opened in March, traded the options "while in
possession of material, non-public information, concerning the
buyout offer", the SEC complaint alleges.
The regulator said Luo was tipped off about the deal by a person who
expected to, and subsequently did, receive a benefit.
Luo could not be reached for comment.
Based in Xiamen, in Fujian province, 4399 Co Ltd produces internet
games and puzzles. The company, which employs around 2,500 people,
is in the process of listing on the Shenzhen Stock Exchange's growth
market ChiNext.
A spokeswoman for 4399 said the company had not been aware of the
investigation into Luo prior to the SEC's announcement, and was
still "checking the facts". She added that the company's listing was
proceeding as normal.
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The SEC filing alleges that Luo, as the CEO of a Chinese internet
gaming company, "would naturally have had relationships with
individuals at Qihoo, one of the largest internet companies in
China, which is also involved in the online video game business.
Indeed, Luo presented at conferences with
individual(s) from Qihoo."
According to 4399's December IPO filing, Qihoo is one of its biggest
customers, along with Tencent, Apple and Google.
A spokeswoman for Qihoo declined to comment on the investigation or
the company's relationship with 4399.
The court order freezes assets in Luo's brokerage account and
prohibits him from destroying any evidence.
The brokerage account was provided by the San Francisco office of
Swiss lender Credit Suisse, according to the filing. A spokeswoman
for Credit Suisse in Hong Kong declined to comment.
The SEC is seeking a final judgment ordering Luo to disgorge his
gains with interest and penalties, the SEC said.
This is the second time this year the SEC, regarded as one of the
most aggressive securities watchdogs in the world, has investigated
trading of U.S-listed stocks by Chinese residents.
In April, the regulator charged two Beijing residents with insider
trading, alleging they profited by purchasing call options on
Chinese internet company 58.com ahead of its merger with rival
ganji.com.
(Reporting by Michelle Price and Deena Yao; Editing by Ryan Woo and
Will Waterman)
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