The United States Securities and Exchange Commission (SEC) has frozen the accounts of certain unknown customers of Singapore broker-dealer Maybank Kim Eng Securities on suspicions of insider trading.
In a court order obtained on Feb 24 and seen by The Straits Times, the SEC alleged that the brokerage's customers made about US$1.7 million ($2.4 million) in potentially illegal trading profits ahead of New York-listed Fortress Investment Group's acquisition by Japanese tech giant SoftBank Group.
The US market regulator has not yet been able to identify the mystery traders, who bought 950,000 shares of Fortress on Feb 14.
When the US markets closed, SoftBank made its offer to buy Fortress at US$8.08 per share, a premium of 30 per cent over the day's closing price of US$6.21. The Maybank KE customers entered orders to sell their shares the next morning before the markets opened, and took a profit of US$1.7 million.
"The timing, size and profitability of these trades are highly suspicious," the SEC said. "Based on information received from Fortress, the consummation of the deal was in serious doubt as late as Feb 12. On Feb 14, Fortress' board of directors received an e-mail at 11.02am that included draft resolutions approving the transaction."
The mystery traders began buying Fortress stock at 11.35am.
The trades were made through omnibus accounts managed by Maybank KE and maintained at UBS, the SEC said.
The emergency court order freezes these accounts to prohibit evidence from being destroyed.
But exposing the individuals behind the accounts will be difficult, as omnibus accounting can mask their identities.
Mr Robson Lee, partner at law firm Gibson Dunn, said: "Omnibus accounts arrangements are highly private and confidential. It is not easy to identify the true beneficiaries of an omnibus account as there could be many layers of nominees above the account holder."
He added: "There is no present legal provision for the SEC to compel the disclosure."
A Maybank KE spokesman told The Straits Times: "We are currently assisting and extending our full co-operation to the relevant authorities investigating this matter. We wish to clarify that neither Maybank Kim Eng nor any of its employees is a party to this litigation in the United States District Court."
A spokesman for the Monetary Authority of Singapore said: "MAS works closely with regulators in other jurisdictions whenever there are cross-border investigations and where our assistance is sought."
In its court complaint, the SEC also alleged that certain unknown customers of RJ O'Brien, a London- based derivatives clearing agent, turned an illegal profit of about US$1.9 million on Feb 15 after buying a large volume of Fortress derivative securities between Feb 10 and 14.
In total, the customers at Maybank KE and RJ O'Brien made profits of more than US$3.6 million from trading on what could have been material, non-public information, the SEC said. The SEC is also seeking a final judgment ordering the traders to "disgorge their ill-gotten gains with interest" and pay fines.
This article was first published on Mar 03, 2017.
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