HONG KONG—The U.S. Securities and Exchange Commission obtained a court order Tuesday to freeze the assets of a China-based trader over what it called suspicious activity ahead of a $9 billion buyout offer for a U.S.-listed Chinese Internet company last week.
Haijian Luo, chief executive of a Chinese online company, 4399 Co., bought approximately $700,000 of out-of-the-money call options, or bets that the stock price of a company will go up, before last week’s announcement of a buyout offer for Qihoo 360 Technology Co., according to a news release from the SEC. A person at Mr. Luo’s company said she didn’t know how to reach him.
Mr. Luo made more than $1 million from the bets and requested his brokerage firm transfer more than half of the proceeds to a foreign bank account, the regulator said.
“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,” said Andrew M. Calamari, regional director of the SEC’s New York office, in the release.
The SEC said Mr. Luo hadn’t traded Qihoo securities before in his recently opened U.S. brokerage account.
Qihoo said June 17 it received a buyout offer from a group that includes its chairman at $77 per American depositary share. The offer came at a 17% premium to the closing price on June 16, and Qihoo shares jumped 6.2% on the 17th.
This isn’t the first time the SEC has looked into trading of U.S.-listed Chinese stocks by Chinese residents this year.
In April, the SEC charged two Beijing residents with insider trading, alleging they purchased stock options on Chinese e-commerce company 58.com ahead of its purchase of a $1.6 billion minority stake in rival Ganji.com.
The Qihoo investigation came amid a wave of buyout offers for U.S.-listed Chinese companies as existing management and other investors seek to relist those businesses at higher valuations in China. In June alone, more than a dozen Chinese companies trading in the U.S. have received offers to be taken private.
At least three of those companies jumped more than 30% in the month before the offers, even though their peers’ shares were flat or slightly up in the same period.
Shares of iDreamSky Technology Ltd., a Chinese mobile-gaming publishing platform, surged 76% in the month before its June 15 announcement that it had a $527 million buyout offer from chairman and chief executive Michael Xiangyu Chen, according to Dealogic.
Renren Inc., a Chinese social-networking site, saw its stock rise 41% in the month before its June 10 announcement of a $1 billion offer from existing management to take it private.
Bona Film Group Ltd., which said on June 12 that it got a $444 million proposal from chairman and chief executive Yu Dong,Sequoia Capital, and Fosun International Ltd., saw its shares rise 37% in the month before the disclosure.
“Now the major players of the U.S.-listed Chinese companies tend to be rich people who are close to the technology industry,” said Cong Li, fund manager of Zenas Capital, a startup Asian hedge fund, and the former Hong Kong chief investment officer of Mirae Asset Global Investment.
“Institutional investors in the secondary market are often at an information disadvantage,” added Mr. Li, saying he has stayed away from those names recently.
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