The gift that keeps on giving: former ChinaCast execs charged with fraud and insider dealing

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inside (Photo credit: ribarnica)

It seems like not a day goes by without some insider trading related charge hitting the newswires, much to the amusement of us observers. Hopefully the message is getting through to the practitioners – insider trading is a bad thing. Or perhaps I am a little naive. Perhaps insider trading deals and market manipulation is going on throughout the financial system. For each one successfully pursued by ever more aggressive regulators, there are a thousand more undetected cases of manipulation, collusion and sensitive information sharing flying under the radar.

Today’s insider story comes from the US Securities and Exchange Commission, which has charged the ex CEO of a Chinese firm with stealing tens of millions of dollars from US investors after the firm’s Initial Public Offering in and another executive with illegally dumping stock.

SEC allegations

Chan Tze Ngon, the former CEO and board chairman of ChinaCast Education Corporation allegedly ‘transferred $41 million out of the $43.8 million raised from investors to a purported subsidiary in which he secretly held a controlling 50 percent ownership stake.  From there, Chan transferred investor funds to another entity outside ChinaCast’s control.  Chan also secretly pledged $30.4 million of ChinaCast’s cash deposits to secure the debts of entities unrelated to ChinaCast.  None of the transactions were disclosed in the periodic and other reports signed by Chan and filed with the SEC.’

As for the insider trading charges Jiang Xiangyuan, ChinaCast’s former president for operations in China, allededly ‘avoided more than $200,000 in losses by illegally selling approximately 50,000 ChinaCast shares after participating in the ownership transfer of one of company’s revenue-generating colleges before it was publicly disclosed by a new management team.  ChinaCast had a market capitalization of more than $200 million before these alleged frauds came to light.  After Chan and Jiang were terminated and their misconduct was publicly disclosed by new management, ChinaCast’s market capitalization dropped to less than $5 million.’

The SEC has charged Chan  breaching Section 17(a) of the Securities Act of 1933 – dealing with fraudulent interstate transactions -, Section 10(b) – position limits and accountability – of the Securities Exchange Act of 1934 and Rule 10b-5 –  as well as violations of various corporate reporting, record-keeping, and internal controls provisions.  Jiang faces illegal insider trading charges under the same statutes.

The SEC’s investigation continues.

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