Insider trading probe for Chinese predator

THE BOURSE WHISPERER: Australia’s corporate regulator, the Australian Securities and Investment Commission has commenced an insider-trading probe into a number of executives at private Chinese firm Hanlong Mining.

The announcement of the investigation saw the shares of two mining companies; Sundance Resources and Bannerman Resources receive a belting on the Australian bourse as both are currently the subject of takeover proposals from Hanlong.

The Supreme Court of New South Wales has prevented Steven Hui Xiao, the managing director of Hanlong Mining, from leaving Australia until 22 September 2011, other than to visit Hong Kong between 13 and 14 September 2011 to attend to visa requirements.

“ASIC obtained these orders in connection with its investigation into suspected insider trading activities in relation to Bannerman Resources Ltd and Sundance Resources,” the corporate watchdog said in an announcement.

ASIC also obtained ex parte orders to freeze the assets and restrain the travel of Xiao along with Calvin Zhu, a Hanlong vice president and Fan Zhang, a Hanlong employee.

Freezing orders were also obtained for Xiao’s wife, Ms Xike Hu, Ms FanFan Chen and Wingatta Pty Ltd, an entity associated with Mr Zhang.

The court also handed down freezing orders for Wingatta, as the company was unrepresented.

Xiao consented to the freezing orders then sought to vary the travel restraint orders permitting him to make a brief trip to Hong Kong. ASIC opposed this variation.

Although the Supreme Court of NSW varied the travel restraint orders to allow Xiao to visit Hong Kong it did find that ASIC had shown a solid basis for investigating whether Xiao may have contravened the Corporations Act insider trading provisions.

However, having regard to Xiao’s connections to Australia, his undertaking given to the court to return to Australia, and an undertaking from his wife to hand in her passport until he returns to Australia, the court allowed the variation.

After applying a trading halt to its shares Sundance said it had no comment to make regarding ASIC’s activities and intends to maintain that position.

Sundance also pointed out that the investigation does not relate to the conduct of the company or any of its employees.

“This investigation represents no change to the company’s previously stated strategy,” Sundance said in an announcement to the ASX.

“Sundance continues to progress its advanced negotiations with Hanlong Mining, as well as with a number of other interested parties, in regards to the development of the Mbalam iron ore project in the Republics of Cameroon and Congo.”

Bannerman Resources also put out a short release saying that it also, “continues to engage in discussions with Hanlong regarding the acquisition proposal made by Hanlong”.

However, Bannerman did not place its securities in a trading halt, a decision which saw its share price take a substantive hit of over 10 per cent.

Proving that it may have a sense of humour the Australian Securities Exchange struck Bannerman with a please explain as to why its share price may have taken such a hit with a large volume of its shares traded throughout the course of the morning’s trade.

“We have noted a change in the price of the company’s securities from a closing price on Monday 12 September 2011 of $0.345 to an intra-day low at the time of writing today of $0.305,” the ASX wrote to Bannerman.

“We have also noted an increase in the volume of trading in the securities over this period.

“Is the company aware of any information concerning it that has not been announced which, if known, could be an explanation for recent trading in the securities of the company?”

It must have taken every fibre of the Bannerman Board’s being not to respond by asking whether the ASX was serious or not, instead it responded by saying, “No, the company is not aware of any information concerning it that has not been announced and which, if known, could be an explanation for recent trading in the company’s securities.”

“The company notes its announcement released earlier today in respect of this morning’s press reports regarding investigations (“Investigations”) by the Australian Securities and Investments Commission into suspected insider trading activities by certain executives of the Sichuan Hanlong Group (“Hanlong”) in the securities of Bannerman (“Announcement”).”

The alleged offences came to light after ASIC’s market surveillance team had noticed substantial trading in contracts for difference (CFDs) in Sundance and Bannerman leading up to the proposed take-over announcements.

ASIC alleges that the company mentioned in the asset freezing orders, Wingatta had purchased around 10 million Sundance CFDs for $3.8 million.

The company is then alleged to have sold them on the day of Hanlong’s takeover announcement for a profit of $1.09 million.

ASIC also alleges a trading account belonging to Xiao’s wife, Xike Hu, bought 266,500 Bannerman CFDs and sold them on the day of its proposed take-over announcement for a gain of $48,277.

Documents show ASIC has spotted trades of over 17 million Sundance CFDs and 1.45 million Bannerman CFDs it has deemed to be suspicious.

According to PerthNow business journalist Nick Evans, Hanlong and Sundance were close to agreement over terms for the proposed take-over before ASIC executed warrants on the Hanlong executives.