The United States Securities and Exchange Commission (SEC) has secured an important win in its case targeting Yinghang “James” Yang, a senior index manager at a globally recognized index provider, and his friend Yuanbiao Chen, a manager at a sushi restaurant. The duo have been charged with perpetrating an insider-trading scheme that generated more than $900,000 in illegal profits.

On February 2, 2021, Judge Frederic Block of the New York Eastern District Court issued a judgment in favor of the SEC against Yinghang Yang. The document, seen by FX News Group, orders that the defendant is permanently restrained and enjoined from violating, directly or indirectly, Section 10(b) of the Securities Exchange Act and Rule 10b-5 by using any means or instrumentality of interstate commerce, or of the mails, or of any facility of any national securities exchange, in connection with the purchase or sale of any security:

• to employ any device, scheme, or artifice to defraud;
• to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or
• to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.

Upon motion of the Commission, the Court will determine whether it is appropriate to order a civil penalty and, if so, the amount of the civil penalty.

Let’s recall that the SEC’s complaint alleges that between June and October of 2019, Yang and Chen repeatedly purchased call or put options of publicly traded companies hours before public announcements that those companies would be added to, or removed from, a popular stock market index that Yang helped his employer manage.

When the options increased in value after the announcements, Yang and Chen allegedly liquidated their options positions for a substantial profit. As alleged in the complaint, the defendants conducted all of the illegal trading in Chen’s brokerage account, which allowed Yang to conceal his trading from his employer. The complaint alleges, for example, that a number of purchase orders were entered in Chen’s brokerage account immediately following logins from IP addresses assigned to Yang’s home address.

Let’s note that the judgment entered on February 2, 2021 applies to Yang only. The SEC’s complaint charges Chen with aiding and abetting Yang’s violations.