Illegal trading hovers over Nexen deal

MARK RALSTON/AFP/Getty Images

(MoneyWatch) Is an SEC insider-trading case involving a Chinese oil company's proposed takeover of Canadian energy firm Nexen discouraging other China-based enterprises from publicly listing their shares in the U.S.?

The China National Offshore Oil Corp., known as CNOOC, in July announced a $15.1 billion bid for Canada's Nexen, causing the target company's stock to jump by 50 percent. Following the acquisition offer, the securities agency said Hong Kong-based Well Advantage and several unnamed traders had stockpiled more than 830,000 Nexen shares in the week before the announcement.

The regulator also said the investor accounts used for the transactions had little or no history of buying Nexen shares.The SEC went on to obtain a court order to freeze the assets of traders who allegedly reaped profits of more than $13 million on the illegal trades.

Well Advantage is controlled by businessman Zhang Zhirong. He also controls China Rongsheng Heavy Industries, which according to a company filing entered a strategic cooperation agreement with CNOOC in 2010.

Goldman dodges SEC bullet over bum mortgage deal
Is the U.S. economy healing or coughing blood?
Europe may get August respite from debt crisis

Suspicious trading possibly related to insider trading is common in Chinese stocks. Last week saw an unusual spike in trading just before Chinese advertising company Focus Media announced that it was being taken private in a leveraged buyout. More than 29,000 calls to buy Focus Media stock changed hands on Aug. 10, five times the four-week average and the highest since Nov. 21, according to Bloomberg. The shares also jumped 7.6 percent that day, the biggest gain since Feb. 1.

Both the SEC and Focus Media have declined to comment on the issue.

Focus Media is the largest of many Chinese companies to recently withdraw from U.S. stock exchanges. These moves also come amid charges of improper accounting by some companies and at a time that Beijing and Washington are stalemated over allowing U.S. regulators to oversee their China-based auditors. Some U.S.-traded Chinese companies also have had auditors quit, while others have been accused of accounting irregularities.

As with other Chinese companies that have withdrawn from the public market, Focus Media justified the move by saying that its low share price did not accurately value the company. The nine-year-old company operates electronic advertising displays in elevators, grocery stores and other locations. The deal to take the company private would value Focus Media at $3.5 billion, according to Dealogic.

Of course, U.S. companies also routinely engage in insider trading, cook their books and break the law in other ways. But the recent regulatory focus on Chinese companies highlights what is perhaps inevitable friction between the investment cultures in the states and in China, where securities enforcement tends to be less systematic. That tension is likely to increase in the years ahead as China grows as an economic power and its companies look abroad to drive growth.

  • Constantine von Hoffman On Twitter»

    Constantine von Hoffman is a freelance writer and writing coach. His work has appeared in outlets such as Harvard Business Review, NPR, Sierra magazine, Brandweek, CIO, The Boston Herald, TheStreet.com, CSO, and Boston Magazine.

Comments

Market Data

Market News

Stock Watchlist