The Chinese citizens and entities charged with insider trading yesterday by the SEC [see WWW story, posted 12/6/11], conducted their trades through accounts at several U.S. broker-dealers - Interactive Brokers, Credit Suisse, TradeKing, and Citigroup. An Open Question for Readers.  A Question that should be asked of personnel at your Firm or Client - as to how they might or should respond if faced with unusual account activities:

Given the unusual spurt of large, unusual and seemingly unsuitable transactions that we detail below - and which frequently characterize insider trading cases:

What is the obligation of each broker-dealer for picking up these transactions and securities transactions, and reporting them to the U.S. Treasury (FinCEN - via SAR forms)? As noted below, you've got these general fact patterns: (i) dormant brokerage accounts that suddenly launch into active purchases in a thinly traded $3.50 stock. (ii) accounts funded with wire transfers, sometimes from China, sometimes from third-parties. (iii) customer trades that account for a large percent (40%+) of that day's volume in the particular stock. (iv) purchases by individual customers that exceed the annual net income and liquid net worth that they reported on their New Account Forms.  We are limited in our assessments because we are not privy to each company's intneral control and supervisory procedures.  Nor do we know what, if any, filings they submitted to, say, FINRA, FinCEN, or others.

^{___________________________________________} With that introduction, we now present the SEC Insider Trading Case. Publicly Traded Companies. Pearson pLc, a London-based company, is one of the world's largest educational companies, entered into an agreement to purchase all outstanding shares of Global Education and Technology Group Limited, a Cayman Islands corporation headquartered in Beijing, China, whose American Depository Shares ("ADSs") trade on Nasdaq (under the symbol GEDU). Pearson agreed to pay $294 million, or $11 per share traded in the U.S. - a 105% premium over the stock's previous trading day's closing price.  The deal was made public on the Monday, 11/21/11, prior to the opening bell.  On the day of the announcement, Global's stock price increased 97%, from $5.37 to $10.60. Trading in Global Education was typically thin.  However, in the 2 weeks before the 11/21 announcement, Defendants bought a substantial numbers of shares, constituting a significant portion of the market for this stock - e.g., on 11/18, the last trading day before the announcement, purchases by Defendants represented over 35% of the entire day's trading volume. Basic Facts and Players. At least 6 traders and one entity made timely purchases of Global Education securities in the days and week prior to the 11/21 announcement - collectively spending more than $2.3 million to buy Global shares.  All are citizens of the People's Republic of China, and all live in China, except one.  All told, they generated over $2.7mn in illicit trading profits. 1. All Know Holdings Limited, a BVI corporation, traded through its account held at Interactive Brokers. 2. Sha Chen ("Chen"), 35, who lives in China and is President of All Know, traded through an account held at Interactive Brokers. 3. Song Li ("Li"), 43, a Chinese citizen living in Columbus, Indiana. traded through an account held at TradeKing, LLC - based in Ft. Lauderdale, FL. 4. Lili Wang ("Wang"), 45, a Chinese citizen, who lives in China and traded through an account held at the San Francisco offices of Credit Suisse Securities (USA) LLC . 5. Zhi Yao ("Yao"), 34, a Chinese citizen, who lives in China, and traded through an account held at Interactive Brokers. 6. One or more unknown purchasers of Global ADS's traded through an omnibus account in the name of China Everbright Securities (HK) Limited, a HK-based private financial services firm.  Everbright's omnibus account and its assets are held at U.S.-based Citigroup Global Markets, Inc.

Trading Activity for #4 - Wang - Credit Suisse.

• 11/10/11 - bought 28,000 shares, at cost of $99K.
• her purchases accounted for 43% of that day's trading in Global shares.
• the purchase was funded with 2 wire transfers, totaling $100K, China-based bank accounts in the name of Oriental Light Consulting Ltd.  Global's co-founder Zhang, who has a connection to Wang, is a director of Oriental Light.
• shares were never sold and are sitting with $197K in paper profits.
• 10/6/10 - Wang's only prior securities transaction in the CS account was one year earlier - paid $350K to buy 35,000 shares from the Global IPO.  That purchase was funded, as well, by Zhang.

Trading Activity for #1 - All Know;  #2 - Chen,  #5 - Yao Wang - all Interactive Brokers.

• March, 2010 - Chen and Yao opened separate personal accounts at Interactive.
• September 2011 - Chen opened account for All Know at Interactive .
• 11/16, 17, 18/2011 - All Know bought 110,000, 1,000, 38,000 Global shares, respectively  bought 28,000 shares, at total cost of $579K.
• All Know's purchases on 11/16 accounted for 41% of that day's trading in Global shares.
• All Know still holds shares in account - sitting with $1 million in unrealized profits.
• 11-16,17/2011 - Chen bought 45,321 shares over the 2 days, at total cost of $207K.
• On New Account Form, Ms. Chen listed annual income of $0 - $39,000;  liquid net worth of $501K - $1 million.
• Chen has $72K in realized profits;  $201K in unrealized profit.
• 11/16,17,18/2011 - Yao bought 43,000 shares for $165K, and sold all shares on 11/21/2011, realizing $285K.
• On New Account Form, Yao listed annual income of $45K - $50K;  liquid net worth at $101K - $250K.

Trading Activity for #3 - Li - TradeKing.

• Sept. 2009 - Li opened an account at TradeKing.
• Account remained unfunded and dormant until October 2011.
• 11/4 -18/2011 - Li purchased a total of 24,500 shares, covering $89K purchase cost with wire transfers from a U.S. Bank held in her name.
• Li placed orders for many more shares than were actually filled  - some were not filled because she lacked sufficient funds;  most other orders not filled because she missed her target price on limit orders.
• During this time, she made aggressive attempts to purchase additional shares.
• On a New Account Form, Li listed annual income at $50K-$100K;  and liquid net worth at $25K-$50K.

For further details, go to:  [SEC Complaint].