The US Securities and Exchange Commission obtained a court order to freeze assets of traders who allegedly reaped more than $13 million by trading illegally ahead of CNOOC Ltd.'s announcement that it would buy Nexen Inc.
Hong Kong-based Well Advantage Limited and other unknown traders stockpiled shares of Nexen based on confidential information about the deal, the SEC said in a statement today announcing a complaint filed at federal court in Manhattan. The court order froze about $38 million in assets, the SEC said.
Nexen's stock rose more than 50 percent on July 23 after CNOOC, China's largest offshore oil and gas explorer, said that it would pay $15.1 billion in cash to acquire the Calgary-based company in the biggest overseas takeover by a Chinese firm. The price was $27.50 for each common share, a premium of 61 percent to Nexen's closing price on July 20, the previous trading day.
"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," Sanjay Wadhwa, deputy head of the SEC's market abuse enforcement unit, said in a statement.
Almost all of the purchases of Nexen stock occurred during the seven trading days before the acquisition was announced, and the accounts used for the transactions had little or no history of buying Nexen shares. Well Advantage's owner is controlling shareholder of a Hong Kong-based company that engages in significant business activities with CNOOC, the SEC said.
The SEC complaint didn't list defense counsel for Well Advantage and the other traders. A telephone call yesterday to a Hong Kong number listed for Zhang Zhi Rong, Well Advantage's sole owner, wasn't answered. Calls and emails to a spokesman were not answered today.
Zhang controls shipbuilder and petrochemical engineering firm China Rongsheng Heavy Industries Group Holdings Ltd., a company that has close business ties to Cnooc, according to the SEC's filing. Zhang, who is also the chairman and founder of Glorious Property Holdings Ltd., according to data compiled by Bloomberg, was listed as China's 38th richest person with a fortune of $2.9 billion in the 2010 Hurun Report, which tracks the country's wealthy.
Bloomberg data showed trading in bullish Nexen options reached the highest level since 2008 before Cnooc announced it would buy the energy company. A total of 47,302 calls traded on the company's US shares last week, with bullish contracts reaching 24,554 on July 20, the most since March 2008.
Call options that convey the right to acquire shares for a given price by a certain date usually offer higher returns than stock to traders speculating on takeover. Nexen said last year it was exploring a sale and the departure of its chief executive officer in January spurred speculation it might find a buyer.