The U.S. Securities and Exchange Commission (SEC) filed a lawsuit against a firm for insider trading related to the recently proposed CNOOC-Nexen deal, according to a press release July 27.
The SEC last Friday froze assets of traders who had used trading accounts in Hong Kong and Singapore to garner more than $13 million in illicit profits. This was connected to the recently proposed acquisition of Canada-based Nexen Inc. by Chinese oil and gas giant CNOOC Ltd.
CNOOC, on July 23, reached an agreement to acquire Nexen for $15.1 billion—the biggest Chinese foreign takeover bid in North America, if approved.
Hong Kong-based Well Advantage Ltd. had accumulated shares of Nexen based on confidential information obtained days ahead of the pending merger, according to the SEC.
A group of traders, based in Singapore, was also part of the accused. The traders involved there have not yet been identified.
Zhang Zhirong, a Hong Kong-based Chinese businessman controls Well Advantage. He also controls China Rongsheng Heavy Industries Group Holdings, which has a “strategic cooperation agreement” with CNOOC, according to the SEC.
“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,” said Sanjay Wadhwa, deputy chief of the SEC Enforcement Division’s Market Abuse Unit, in a statement.
Well Advantage gained $7 million in unrealized profits after the merger was announced, while the other unknown traders, utilizing accounts in Singapore, made $6 million in unrealized gains.
CNOOC’s last bid for North American assets was in 2005, when it had proposed a merger with California-based Unocal.
U.S. Sen. Charles Schumer (D-N.Y.) sent a letter last week to Treasury Secretary Timothy Geithner, urging him to block the CNOOC-Nexen merger in his capacity as chairman of the Committee on Foreign Investment in the United States.
Sen. Schumer argues that the deal should be blocked until the Chinese communist government takes measures to open its own markets to foreign investments in a fair manner.
“It is rare that we have so much leverage to exert upon China. We should not let this window of opportunity pass us by. At some point, we have to put our foot down over China’s refusal to play by the rules of free trade,” Schumer said to Geithner, according to a news release on his website. Schumer was also a vocal critic of the 2005 CNOOC-Unocal deal, which eventually fell through due to political pressure.
The United States weighs in on the deal because Nexen has assets in the United States. Gulf of Mexico, and as such, U.S. laws require a national security review.
As for Canada, it will perform its review in the next few weeks. Canadian Prime Minister Stephen Harper has been mum on his views of the decision.
“Clearly, these are business deals, but business, politics, and geopolitics are now put together in a much more complex sandwich and the debate we’re going to have and the need for an informed public on this is crucial,” professor Paul Evans of University of British Columbia told the Calgary Sun on July 28.
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