We have a few examples of eavesdropping as a source of information for fraudulent insider trading. This was a heightened problem during the work-at-home era and interacting with family members. The insider trading case against a translator was a new take. The translator in question has a family that is a high level executive of a company that learned of a merger between its US joint venture partner and another company.
Song Yuan worked for a tire company in China. According to the SEC complaint, Yuan was on a call between Yuan’s tire company and Cooper Tire, a US company with publicly traded stock.
I’m going to take a tangent and point out that the SEC complaint uses the term “translator.” As I was looking into the story, I came across articles about “translator” versus in “interpreter.” The general consensus is that a translator works on written text and an interpreter work on spoken statements.
Yuan’ has a relative that is a high level executive ‘s family member and Cooper’s CEO were on a videoconference with Cooper Tire’s CEO. Yuan acted as the [interpreter]. During the call there was disclosure that Cooper Tire had received an purchase offer from Goodyear.
Yuan went out and purchased a bunch of Cooper Tire stock. It rose in price when the acquisition by Goodyear was announced. Yuan made over $65,000 in profit on the ensuing stock sale.
Clearly, this is a case of insider trading.
Yuan is a Chinese citizen, living in China. So there is the question of applicability of US law. As to the nature of the information, the Cooper Tire CEO asked in an email that the information be kept confidential. I assume Yuan “translated” that email. That should establish the duty. The trade was in a US stock, so the Exchange Act applies to the transaction.
I would guess what really grabbed the transaction was the brokerage firm that Yuan used for the trade. Buying almost 5000 shares just before a merger announcement is going to raise a red flag at compliance. I would guess that the brokerage froze the cash. Yuan was trapped and caught.
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