By Ben Geman - 07/27/12 10:22 PM EDT
The Securities and Exchange Commission (SEC) has frozen the assets of traders who allegedly made over $13 million in “illegal profits” from this week’s announcement that CNOOC Ltd., a big Chinese oil company, is buying Canadian oil producer Nexen Inc.
The SEC won a court order Friday targeting the traders who, operating through accounts in Hong Kong and Singapore, allegedly used confidential information ahead of the deal’s announcement to stockpile shares of Nexen stock, which soared in value when the acquisition plan went public July 23.
In a complaint filed Friday in New York, the SEC alleges Hong Kong-based Well Advantage Ltd., and other unknown traders using accounts in Singapore, engaged in “highly suspicious and highly profitable” trading in Nexen stock that rose by about 52 percent in value after the proposed $15 billion acquisition was announced.
The SEC complaint filed in the U.S. District Court for the Southern District of New York alleges that “each Defendant purchased Nexen stock while in the possession of material, nonpublic information concerning CNOOC's proposed acquisition of Nexen.”
“[A]llor nearly all of the Defendants' purchases of Nexen stock occurred during the last seven trading days before the Announcement, and the accounts used for such purchases had either no history or extremely limited history of buying shares of Nexen stock prior to July 2012,” the complaint states.
The SEC, which has an ongoing investigation, said it took emergency action to freeze the traders’ assets less than 24 hours after Well Advantage moved to sell its Nexen stock yesterday, which would have brought a $7 million profit.
Well Advantage had bought more than 830,000 shares of Nexen stock on July 19, according to the SEC.
Here’s some of the reasons why the SEC believes the Well Advantage trading was shady: The complaint states that before July 19, the Citigroup account that Well Advantage used had never traded in Nexen stock, and the Well Advantage account at UBS had not traded in Nexen since at least January of this year.
The SEC also notes that Well Advantage is controlled by Hong Kong businessman Zhang Zhi Rong, who the complaint notes is a controlling shareholder of Rongsheng, a company that has business ties with CNOOC, the big state-owned Chinese oil producer buying Nexen.
In addition to Well Advantage, the complaint targets unknown traders who allegedly used a pair of separate accounts in Singapore to buy over 676,000 Nexen shares in the days leading up to the announcement, and then flipped it right after the deal was announced for a profit of about $6 million.
“Well Advantage and these other traders engaged in an all-too-familiar pattern of misusing inside information to place extremely timely trades and profit handsomely from their illegal acts,” said Sanjay Wadhwa, deputy chief of the SEC enforcement division’s market abuse unit, in a statement Friday afternoon.
“Despite the challenges of investigating misconduct in the U.S. by trading accounts located overseas, we have moved swiftly to freeze the assets of these suspicious traders and will hold them accountable for their actions,” Wadhwa said.