Ever since the SEC decided that its raison d'etre was rooting out every inside trader in existence, no matter how puny or inconsequential, we've gotten pretty used to reading about the sorry attempts at tracks-covering people tend to make while profiting off of material nonpublic information. And although there's a relatively small range of tactics people use, we didn't expect the posing-as-your-mom technique to become a thing.
And yet here we are. On Wednesday the SEC charged research scientist Fei Yan – and his mom – with insider trading ahead of two corporate deals. The trades netted Yan more than $120,000 as well as top spot (perhaps) in the running for Worst Son Of The Year 2017.
According to the complaint, Yan's lawyer wife (known affectionately as Attorney A) picked up tips about acquisitions her law firm advised on and divulged these tips to her husband. As any good husband and son would do, Yan immediately took his wife's material nonpublic information and “submitted an application to open a brokerage account in the name of his mother Wu, a citizen and resident of China.” From the complaint:
In the following weeks, as the Steinhoff-Mattress Firm negotiations continued, Yan funded the newly-opened brokerage account (the “Wu Account”) from his own bank account, and then proceeded to purchase 300 shares of Mattress Firm stock in the Wu Account. The Mattress Firm tender offer was announced on Sunday, August 7, 2016. On August 8, 2016, the first trading day following the announcement, Yan sold his entire Mattress Firm position, profiting by over $9,700.
That was just a practice run. The real money was to be had in a deal between Stillwater Mining Company and Sibanye Gold Limited:
Later that same year, on November 22, 2016, approximately three months after Attorney A joined the Sibanye-Stillwater deal team at Law Firm A, and eight days after Law Firm A delivered a confidential draft of the Sibanye-Stillwater merger agreement to Stillwater’s counsel, Yan began purchasing Stillwater call options, again using the Wu Account. Yan bought additional Stillwater call options during the following 16 days, purchasing a total of 766 contracts in advance of the December 9, 2016 pre-market-open acquisition announcement.
He ended up making $109,700 on the options when the deal went through, the SEC said. But lest you judge, Yan did apparently take some precautions while buying thousands of dollars worth of call options in his mother's name ahead of an acquisition his wife was privy to:
In the final days before the announcement, as Yan was purchasing his Stillwater options, he also conducted internet searches for the phrases “how sec detect unusual trade” and “insider trading with international account” and accessed articles about the Commission’s detection and enforcement efforts in the insider trading area.
Needless to say, none of this is very smart. But the real crime is failing to use Incognito Mode while googling for tips about how to insider trade well. It might not spare you an SEC investigation, but it will spare you a bit of embarrassment down the road.
[The case is 1:17-cv-05257: Securities and Exchange Commission vs Fei Yan and Rongxia Wu.]