(December 13, 2012) — The Securities and Exchange Commission (SEC) has charged the manager of two New York-based hedge funds with conducting a pair of trading schemes involving Chinese bank stocks.
The alleged gains: $16.7 million in illicit profits.
According to the US regulator, Sung Kook “Bill” Hwang, the founder and portfolio manager of Tiger Asia Management and Tiger Asia Partners, committed insider trading by short selling three Chinese bank stocks based on confidential information he received in private placement offerings. “Hwang and his advisory firms then covered the short positions with private placement shares purchased at a significant discount to the stocks’ market price. They separately attempted to manipulate the prices of publicly traded Chinese bank stocks in which Hwang’s hedge funds had substantial short positions by placing losing trades in an attempt to lower the price of the stocks and increase the value of the short positions. This enabled Hwang and Tiger Asia Management to illicitly collect higher management fees from investors,” the SEC said.
“Hwang today learned the painful lesson that illegal offshore trading is not off-limits from US law enforcement, and tomorrow’s would-be securities law violators would be well-advised to heed this warning,” said Robert Khuzami, director of the SEC’s division of enforcement.
Sanjay Wadhwa, associate director of the SEC’s New York regional office and deputy chief of the Enforcement Division’s Market Abuse Unit, added, “Hwang betrayed his duty of confidentiality by trading ahead of the private placements, and betrayed his fiduciary obligations when he defrauded his investors by collecting fees earned from his attempted manipulation scheme.”
This case is the latest in a long line of SEC allegations. The regulator has filed more than 175 insider trading actions since October 2009, charging more than 400 individuals and entities. The defendants in these actions are alleged to have made more than $905 million in illicit gains.
The US Attorney’s Office for the District of New Jersey has meanwhile announced criminal charges against Tiger Asia Management.
In October of this year, for example, the SEC charged a pair of hedge fund managers and their firms with lying to investors about how they were handling the money invested in their firms. “These hedge fund frauds have lured even the most sophisticated investors using the siren song of outsized returns or secured and guaranteed investments,” said Robert Khuzami, director of the SEC’s Division of Enforcement, in a statement. “As fraudsters increasingly capitalize on the cachet of hedge funds, we will maintain our strong presence in policing this industry.”
According to the SEC’s October complaint, filed against Banet and Lion Capital Management in federal court in San Francisco, the US regulator alleged that San Francisco-based hedge fund manager Hausmann-Alain Banet and his firm Lion Capital Management stole more than a half-million dollars from a retired schoolteacher who thought she was investing her retirement savings in Banet’s hedge fund. In the other case, the SEC charged Chicago-based hedge fund managers Norman Goldstein and Laurie Gatherum and their firm GEI Financial Services with fraudulently siphoning at least $147,000 in excessive fees and capital withdrawals from a hedge fund they managed.