The case against Fei Yan was a fairly straight-forward insider trading case involving leaky M&A transactions. In this case, the leaks came from a junior corporate associate working on the transactions. We can only guess that she told her husband, Mr. Yan, about her day at work and revealed too much information.
While Mr. Yan was working as a postdoctoral associate at the Massachusetts Institute of Technology’s electronics research lab. He apparently had enough free to time to trade stocks and advance into options. He did so in an account in his mother’s name, using leaked information from his wife. At least that is what the SEC and DOJ are going to try to prove.
Mr. Yan started trading in Mattress Firm just forty-five days before the announcement of its acquisition by Steinhoff International. His gifted trading netted him almost $10,000.
The next transaction was the acquisition of Stillwater Mining by Sibanye Gold. With Mr. Yan’s now advanced trading skills, he moved to the higher leverage of options. He acquired a slate of call options within 30 days of the transaction’s announcement. With the additional leverage, he generated a profit of over $100,000.
The case ended up with criminal charges as well. I was curious about what escalated it to make it worthy of criminal prosecution.
The SEC complaint noted two Google searches:
“how sec detect unusual trade”
“insider trading with international account”
And further notes the Mr. Yan reviewed several items in the search results, including “Want to Commit Insider Trading? Here’s How Not to Do It.”
That article noted the 2013 Badin Rungruangnavarat insider trading case where his trading was most of the trading activity in the options and futures involved. It also involved a lot more money.
Mr. Badin made $3.2 million which makes him a much juicier target for prosecution. Mr. Yan’s $120,000 in profits are going to cost him a much larger amount in legal fees to defend the civil case and the criminal case to keep him out of jail. According to reports, he used a court-appointed attorney at the bail hearing. If convicted, he could face up to 25 years in prison and as much as $5 million in fines for the security fraud charges, and 20 years in prison and up to a $250,000 fine for the wire fraud charge.
I assume the Google searches made the federal prosecutors see that Mr. Yan had criminal intent, clearly knowing what he was doing was illegal and taking steps to hide the trading activity.
Given the small amounts, how did he get caught? I would guess the brokerage compliance team noted the suspicious activity and reported it to the SEC.
Sources:
- SEC Complaint
- SEC Files Insider Trading Charges Against Research Scientist Aiming to Avoid SEC Detection
- Insider-Trading Charge For Lawyer’s Husband
- MIT postdoc associate accused of insider trading
- Want to Commit Insider Trading? Here’s How Not to Do It.
- Red Flags for Insider Trading
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