The U.S. securities regulator has obtained a court order to freeze the assets of a Chinese online gaming CEO over what it described as "suspicious" trading activity ahead of a $10 billion deal by U.S.-listed Qihoo 360 Technology Co Ltd.
In a statement, the Securities and Exchange Commission (SEC) said Guangzhou-based Luo Haijian made more than $1 million trading options in Qihoo ahead of the news 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, the complaint says.
"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.
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, nonpubic information, concerning the buyout offer," the SEC complaint alleges.
Luo could not be immediately reached for comment.
The court order freezes assets in Luo's brokerage account and prohibits him from destroying any evidence. 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.
