SEC Busts Insider Trading Within Family

Jack Humphrey, Regulatory journalist
January 21, 2011 /

What may seem to be a successful trial for the development of of a product that could be used to treat cancer has been maligned by an insider trading between a white-collar and family members that generated thousands of dollars in ill-gotten profits.

The Securities and Exchange Commission has obtained a court order January 21 from U.S. District Court for the Western District of Washington that freezes the bank and brokerage account of a family member of a biopharmaceutical firm’s manager.

In its complaint before the court, the SEC alleged that Seattle Genetics manager Zizhong (James) Fan has tipped his family member Zishen (Brandon) Fan with inside information about the development of a successful test on the possible cure for Hodgkin’s lymphoma.

Zishen, then, used the information to buy stock of the company that soared almost 18 percent in price when it was made public September 2010. The rise in the stock value has generated more than $800,000 in illegal profits for Zishen.

Upon SEC’s inquiry into the insider trading, Zishen tried to funnel his ill-gotten gains offshore. The commission took prompt actions by filing an emergency enforcement with the Western District of Washington to freeze the brokerage and bank accounts containing the Seattle Genetics trading proceeds.

“While our investigation is at an early stage, when we have evidence of insider trading and the individuals involved respond to our investigation by trying to funnel their illicit profits offshore, we are prepared to take quick action to preserve those assets for recovery by the authorities,” Director of the SEC’s San Francisco Regional Office Marc Fagel said.

The SEC orders Zizhong Fan and Zishen Fan to disgorge their illegally amassed profits with additional interest and fines, and seeks for an injunctive relief for the two. Junhua Fan, another family member living in China was named relief defendant for allowing Zishen to use his brokerage account that abetted the insider trading.

 

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