Australian inside trader pleads guilty

GARETH HUTCHENS AND LEONIE LAMONT
Last updated 09:05 01/08/2012

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Calvin Zhu was a migrant success story - arriving in Australia with his family as a 10-year-old, getting a university education in finance, and then by the age of 30 holding the lofty title of executive vice-president with Hanlong Mining.

Yesterday, Zhu was revealed as a serial inside trader, pleading guilty to three charges of prohibited conduct while in possession of inside information, which reaped him more than A$371,000 (NZ$480,000).

The transactions occurred during his investment banking career at two firms, Caliburn Partnership and Credit Suisse, and later as an executive of Hanlong Mining.

Evidence tendered in a New South Wales court yesterday has put the spotlight back on the knowledge and activities of senior executives at Hanlong Mining, where Zhu was working, including current serving executives.

Hanlong Mining is negotiating a A$1.6 billion takeover of listed Australian miner Sundance Resources, and it was suspected insider trading in Sundance, and another Hanlong takeover target, Bannerman Resources, that set off alarms at ASIC.

Zhu's offences date back to late 2006, when he was an executive at advisory firm, Caliburn. Zhu had progressed in the Caliburn pay ranks, receiving a salary of A$119,000 plus a A$60,000 bonus within 10 months of starting.

Caliburn was asked to advise the listed Australian credit reference company, Veda Advantage, which was subject to a proposed takeover by Pacific Equity Partners.

Because of the information he gained about the takeover proposal, he procured a friend, Fei Yu, to open a trading account with CommSec in the name of Fei's mother, Ming Fei.

They bought financial products relating to Veda, deriving A$81,483 profit, less costs, of which Zhu's share was A$55,814.50.

When later employed at Credit Suisse in 2008, he used inside information about the proposed takeover of Funtastic by Archer Capital, and also the proposed takeover of the Adelaide Managed Funds Asset Backed Yield Trust by Bendigo and Adelaide Bank. Those transactions netted Zhu A$10,459, less A$6900 for the avoidance of losses.

The third charge related to his employment as vice-president, investments, at Hanlong Mining. In five transactions relating to Hanlong takeover targets, the insider trading realised a profit of A$1.25 million, of which Zhu's share was A$305,000.

In all of three charges, he pleaded guilty to procuring various friends to open trading accounts and acquire securities and derivatives.

In September 2010, two months after joining Hanlong Mining, an Australian subsidiary of China's Sichuan Hanlong Group, Zhu was invited by the company's managing director, Steven Xiao, to co-invest in a private fund for the purpose of making profit. Xiao, who is also under investigation for alleged insider trading, has fled Australia.

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A statement of facts tendered in court said that without Sichuan Hanlong's permission, Xiao and Zhu made a highly conditional proposal to Bannerman Resources in April 2011. They didn't expect it to be accepted but it enabled them to embark on insider trading.

Zhu will appear in the NSW Supreme Court next month.

- Sydney Morning Herald

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