HONG KONG (REUTERS) - The U.S. securities regulator has obtained a court order to freeze the assets of a Chinese online gaming CEO over what it described as "suspicious" trading activity ahead of a US$10 billion (S$13.4 billion) deal by US-listed Qihoo 360 Technology Co Ltd.
In a statement on Tuesday, the Securities and Exchange Commission (SEC) said Guangzhou resident Luo Haijian made more than US$1 million trading options in Qihoo ahead of the news last week that the Chinese tech company had received a buyout offer at a 16.6 per cent premium to its June 16 closing price.
In a New York court filing, the SEC says 33-year old Luo, who is the chief executive of 4399 Co Ltd, bet Qihoo's stock price would rise in the short term by purchasing US$700,000 of "out of the money" call options through a U.S. brokerage account prior to the buyout announcement.
Qihoo received the buyout offer on June 17 from a consortium led by its chairman and CEO Hongyi Zhou, adding the mobile security software maker to a long list of Chinese tech companies that have received offers to drop their New York listings and head back home. Qihoo's stock opened 9 percent higher on the news.
Luo subsequently sold all his call options and asked his broker to transfer $600,000 of his proceeds to a Singapore bank account, according to the SEC complaint seeking the asset freeze injunction. "The suspicious timing and size of Luo's trades spurred us to move swiftly to freeze his proceeds and ensure that potentially illegal profits cannot be siphoned out of this account beyond a U.S. court's jurisdiction while our investigation continues," Andrew Calamari, regional director of the SEC's New York office, said in an SEC statement.
Luo, who had no prior history of trading Qihoo securities using the U.S. brokerage account opened in March, traded the options "while in possession of material, non-public information, concerning the buyout offer", the SEC complaint alleges.
The regulator said Luo was tipped off about the deal by a person who expected to, and subsequently did, receive a benefit. Luo could not be reached for comment.
Based in Xiamen, in Fujian province, 4399 Co Ltd produces internet games and puzzles. The company, which employs around 2,500 people, is in the process of listing on the Shenzhen Stock Exchange's growth market ChiNext.
A spokesman for 4399 said the company had not been aware of the investigation into Luo prior to the SEC's announcement, and was still "checking the facts". She added that the company's listing was proceeding as normal.
The SEC filing alleges that Luo, as the CEO of a Chinese internet gaming company, "would naturally have had relationships with individuals at Qihoo, one of the largest internet companies in China, which is also involved in the online video game business. Indeed, Luo presented at conferences with individual(s) from Qihoo."
According to 4399's December IPO filing, Qihoo is one of its biggest customers, along with Tencent, Apple and Google.