Two Chinese tech executives have paid fines related to insider trading charges, after an FT investigation highlighted share sales ahead of poor earnings results.
The US Securities and Exchange Commission charged Cheetah Mobile chief executive Sheng Fu and its former president and chief technology officer Ming Xu. Its action came 10 months after a Financial Times investigation found that in 2016, Fu initiated share sales worth as much as $31mn a few weeks before reporting quarterly results that sent Cheetah shares plummeting 30 percent.
Cheetah Mobile is a Beijing-based mobile internet company that operates a series of platforms, including privacy protection and photo-collage applications. It did not respond to a request for comment.
In 2015, around one-third of Cheetah Mobile’s revenues were generated from fees for advertising space in its applications, according to the SEC order. The company’s ad revenues fell by around 30 percent in the first quarter of 2016 to $33mn.
The SEC said that Fu and Xu jointly established a trading plan “after becoming aware of a significant drop-off in advertising revenues from the company’s largest advertising partner”.
The Cheetah Mobile executives cashed out through plans that allow insiders to buy and sell shares in advance when they are unaware of material non-public information.
Fu and Xu agreed to pay fines of $556,580 and $200,254 respectively, after the SEC determined they had access to such material non-public information when they entered into the trading plan. The SEC said the pair did not admit nor deny the charges.
“This case serves as yet another example of the SEC’s resolve to hold executives accountable when they try to skirt federal securities laws to illegally trade on non-public information,” said the SEC’s Joseph Sansone, who supervised the case.
The SEC also found that Fu made “materially misleading public statements” about its revenue trends during a March 2016 earnings call and “caused the company’s failure to disclose a material negative revenue trend” one month later. Fu had ascribed “softness” in first-quarter results to “seasonality” rather than the hit it had taken from an advertising partner’s algorithm change, which resulted in reduced fees for ad placements.
The FT report highlighted well-timed trades by Chinese tech bosses ahead of regulatory moves or earnings announcements that sent shares of the US-listed companies crashing.
The co-founders of the online English tutoring platform 51Talk had cashed out $4.3mn worth of shares ahead of Beijing’s move to ban for-profit after-school tutoring, which wiped billions off the valuation of listed Chinese ed-tech firms.
Additional reporting by Gloria Li in Hong Kong