Research Lab Worker Arrested, Charged With Securities Fraud
July 12 2017 - 5:47PM
Dow Jones News
By Nicole Hong and Sara Randazzo
A research lab employee in Massachusetts was arrested Wednesday
and charged with making illegal trades off nonpublic information
provided by his wife when she was a law firm associate.
Fei Yan, a 31-year-old Chinese citizen, was charged by the
Manhattan U.S. attorney's office with two counts of securities
fraud and one count of wire fraud. He was arrested in the Boston
area.
Mr. Yan worked as a postdoctoral associate at the Massachusetts
Institute of Technology's electronics research lab, according to an
MIT spokeswoman. It is unclear whether he is still employed
there.
Federal prosecutors say Mr. Yan made more than $100,000 trading
in options of Stillwater Mining Co., a Colorado-based mining
company, ahead of its acquisition by South African miner Sibanye
Gold Ltd. He allegedly knew secret details of the merger from his
wife, who worked on the deal as an associate in the Manhattan
office of Linklaters LLP, a large London-based law firm.
A spokeswoman for Linklaters said the associate, who is not
identified in the complaint, has been suspended without access to
the firm's systems and confidential information. She hasn't been
arrested. The law firm says it is cooperating with authorities.
A spokesman for Sibanye declined to comment.
A lawyer for Mr. Yan couldn't immediately be identified.
In June 2016, Mr. Yan opened a brokerage account in the name of
his mother and began trading Stillwater stock, the government
alleges. The complaint details several calls from Mr. Yan to the
brokerage firm and to his wife in the months before the
acquisition.
On Nov. 22, 2016, hours after Mr. Yan's wife participated in a
call on the potential deal, Mr. Yan's brokerage account bought call
options in Stillwater, which is typically a bet that the price of
the stock will increase. The account continued purchasing call
options until the deal was announced, prosecutors said.
In a related complaint, the Securities and Exchange Commission
alleged Mr. Yan also made around $9,700 in profits from illegal
trades tied to the acquisition of Mattress Firm Holding Corp. by
Steinhoff International Holdings. Steinhoff, like Sibanye, was
being represented by his wife's law firm, according to the SEC.
Several of Mr. Yan's internet searches were documented in the
complaint.
Three days before the public announcement of the deal, Mr. Yan
allegedly searched for "how sec detect unusual trade" and accessed
at least three articles about insider trading. In the next few
days, prosecutors said he also searched for "insider trading with
international account" and viewed an article entitled, "Want to
Commit Insider Trading? Here's How Not To Do It."
Minutes after the deal was announced on the morning of Dec. 9,
2016, Mr. Yan's brokerage account sold all of its Stillwater call
options, resulting in a profit of approximately $109,420, the
complaint said.
That same day, Mr. Yan searched on the internet for "insider
trading cases" and "insider trading options," prosecutors said.
Tips gleaned from law firm assignments have been used as the
basis of several insider trading cases in recent years.
In May, federal prosecutors in Manhattan charged a former Foley
& Lardner LLP partner with making illegal trades based on
pending corporate announcements from firm clients, and with passing
along tips to a neighbor to make trades of his own. The U.S.
attorney's office is in discussions with the two defendants, Walter
C. Little and Andrew M. Berke, about a possible disposition of the
case, according to a court filing.
Earlier guilty pleas in insider-trading cases involving
employees at Wilson, Sonsini, Goodrich & Rosati PC and Simpson
Thacher & Bartlett LLP got widespread attention and served as a
wake-up call for law firms that their internal systems may not be
secure enough.
Write to Nicole Hong at nicole.hong@wsj.com and Sara Randazzo at
sara.randazzo@wsj.com
(END) Dow Jones Newswires
July 12, 2017 17:32 ET (21:32 GMT)
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