The U.S. Securities and Exchange Commission has obtained an emergency court order to freeze the assets of traders using trading accounts in Hong Kong and Singapore to reap more than $13 million in illegal profits by trading in advance of last week's public announcement that China-based CNOOC Ltd. agreed to acquire Canada-based Nexen Inc.

 

The SEC alleges that Hong Kong-based firm Well Advantage Limited and other unknown traders stockpiled shares of Nexen stock based on confidential information about the deal in the days leading up to the announcement. 

 

Well Advantage is controlled by prominent Hong Kong businessman Zhang Zhi Rong, who also controls another company that has a “strategic cooperation agreement” with CNOOC.

 

The SEC took the emergency action to freeze the traders’ assets within days of the public announcement of the deal and less than 24 hours after Well Advantage placed an order to liquidate its entire position in Nexen. The SEC’s investigation continues.

 

“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 and Associate Director of the New York Regional Office. “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.”

 

According to the SEC’s complaint filed in federal court in Manhattan, CNOOC and Nexen announced before the markets opened on Monday, July 23 that CNOOC agreed to acquire Nexen for approximately $15.1 billion. Nexen’s stock subsequently rose sharply that day to close at nearly 52 percent higher than Friday’s closing price.

 

The SEC alleges that Well Advantage and certain unknown traders were in possession of material nonpublic information about the impending acquisition when they purchased Nexen’s stock in the days leading up to the public announcement. 

 

Well Advantage purchased more than 830,000 shares of Nexen on July 19 and had an unrealised trading profit of more than $7 million based on Nexen’s closing price on the day of the announcement. 

 

The other unknown traders used accounts located in Singapore to purchase more than 676,000 Nexen shares in the days preceding the announcement. They immediately sold nearly all of the stock once the announcement was made for illicit profits of approximately $6 million.

 

The emergency court order obtained by the SEC freezes the traders’ assets valued at more than $38 million and prohibits the traders from destroying any evidence. 

 

The SEC’s complaint charges Well Advantage and the unknown traders with violating Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5. 

 

In addition to the emergency relief, the Commission is seeking a final judgment ordering the traders to disgorge their ill-gotten gains with interest, pay financial penalties, and permanently bar them from future violations.