Chinese restaurant owner fined 890,000 yuan for insider trading

The Securities and Exchange Commission (SEC) announced on the 13th that the Federal Court in Massachusetts has handed down a final judgment against local restaurant owner Charlie Jinan Chen, maintaining his insider trading charges but reducing the fine to $890,000. The case dates back to February 2020 when a jury found Chen guilty of trading using undisclosed information before the release of Vistaprint N.V.’s financial reports, resulting in illegal profits.

According to evidence provided by the SEC, Chen obtained crucial non-public information through Vistaprint employees or friends’ spouses and traded Vistaprint securities based on that information. Between April 2013 and July 2014, he purchased options five times before financial announcements, profiting from price fluctuations and accumulating nearly $900,000 in illegal gains. The trading activities involved two brokerage accounts, one in his name and the other owned by his wife. Moreover, trial evidence showed that Chen falsely claimed not to know any Vistaprint employees during an FBI interview in 2016.

On February 3, 2020, a jury in the Boston Federal Court found Chen guilty of violating the anti-fraud provisions of the Securities Act on all charges.

Following the initial ruling in early 2020, Chen filed legal objections, requesting a retrial, citing alleged inconsistencies in the jury’s verdict and lack of sufficient supporting evidence. However, Chief Judge F. Dennis Saylor IV of the Massachusetts Federal Court ultimately upheld the jury’s decision as lawful and reasonable.

Despite this, Judge Saylor considered several factors and halved Chen’s original fine of over $1.78 million (twice the illegal profits) to $890,000, equivalent to his illegal gains. He stated that Chen is not a wealthy individual, his misconduct did not exceed typical insider trading boundaries, and his non-financial industry status reduced the risk of recurrence.

Chen was initially criminally charged, and in April 2019’s criminal case, he was acquitted of three insider trading charges but sentenced to two years of probation and a small fine for making significant false statements to the FBI. However, the SEC brought civil enforcement proceedings against Chen, ultimately ruling that he violated the Securities Act’s anti-fraud provisions, though not involving criminal penalties, permanently prohibiting him from violating related regulations and ordering payment of the fine.

Court documents reveal that Chen had a close relationship with former Vistaprint employee Jenny Ye and her husband Kevin Xu, and through this relationship, he obtained insider information. While the jury could not determine if Ye or Xu was the source of the information, Judge Saylor ruled that at least one of them provided Chen with important non-public information, which Chen knowingly utilized.

In court documents, Judge Saylor stated, “When the tip of insider news is given as a gift to a friend, it is for personal benefit. Moreover, the evidence presented by the government shows that Ye and Xu wanted to go on vacation with Chen’s family, but Chen’s family often could not afford such vacations. Based on this evidence, a reasonable jury could conclude that Ye or Xu disclosed important non-public information to Chen for personal gain.”