SEC accuses Hong Kong firm of insider trading ahead of Cnooc’s Nexen deal

by on July 28, 2012 12:00 am BST

SEC accuses Hong Kong firm of insider trading ahead of Cnooc’s Nexen deal


NEW YORK — The SEC said it has obtained a court order freezing $38 million in assets held by Well Advantage and other unknown traders, whom it said illegally took in more than $13 million in profits by trading in advance of the deal’s announcement.

A representative from Well Advantage couldn’t be immediately located for comment.

Cnooc said on Monday that it planned to buy Nexen for $15.1 billion, in an ambitious push by the Chinese state-owned oil company into North American oil and gas fields. The deal, if completed, would mark Cnooc’s biggest foreign acquisition yet.

The U.S. regulator said Well Advantage and “other unknown traders” used accounts in Hong Kong and Singapore to stockpile Nexen shares based on confidential information about the deal. Well is owned by Zhang Zhirong, a prominent Hong Kong businessman with ties to Cnooc, the SEC said.

“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, of the SEC’s enforcement division.

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

Well Advantage purchased more than 830,000 shares of Nexen on July 19, four days before the deal was announced on Monday, for an unrealized gain of $7 million on Nexen’s closing price on the day of the announcement, the SEC said. The “other unknown traders” used accounts in Singapore to buy more than 676,000 shares in the days before the announcement, and immediately sold nearly all the stock for a profit of nearly $6 million.

Nexen shares surged immediately after the deal was announced. The stock, which closed at $25.81 on Friday, has gained roughly 51% since the market closed on July 20. The SEC continues to investigate suspicious trading activity that preceded the deal, including options trading, according to Mr. Wadhwa.

Several days last week, traffic in Nexen’s options ran in the tens of thousands, versus average daily volume of fewer than 200 options contracts. The vast majority of those contracts benefited from the sharp rise in Nexen’s stock price after the deal was announced.