NEW YORK (Reuters) - In the latest chapter of a U.S. crackdown on insider trading, Tiger Asia Management, an Asia-focused hedge fund run by Sung Kook “Bill” Hwang, pleaded guilty on Wednesday to wire fraud in connection with illegal trading of two Chinese bank stocks, according to federal prosecutors in New Jersey.
Hwang and the fund were separately charged with insider trading in a civil suit by the U.S. Securities and Exchange Commission, according to an SEC press release.
The SEC also charged Tiger Asia’s head trader, Raymond Park, with insider trading. Park and Hwang agreed to settle the SEC’s charges without admitting or denying them.
The defendants will pay a total of $44 million to settle the criminal and civil charges, and Tiger Asia Management will be placed on probation for a year.
Tiger Asia, which managed as much as $5 billion at its peak, was a spin-off of fund guru Julian Robertson’s Tiger Management, one of the world’s largest hedge funds in the late 1990s. Robertson returned investor money in 2000 and focused on investing his own earnings in funds managed by his protégées, known on Wall Street as “Tiger Cubs.”
Federal prosecutors and the SEC each charged Hwang with profiting illegally from inside information about China Construction Bank Corp and Bank of China Ltd ahead of share placements by those companies in 2008 and 2009.
According to the civil and criminal complaints, Park and Hwang violated agreements with large investment banks that prohibited Tiger Asia from trading in the stocks based on information received while participating in the placements.
“Mr. Park is happy to put this matter behind him,” said his lawyer, Steven Glaser, a partner at Skadden, Arps, Slate Meagher & Flom.
Hwang’s lawyers did not immediately respond to requests for comment.
The trading activity had already resulted in a freeze on Tiger’s assets and a ban from trading in Hong Kong. The fund, which most recently managed $1.2 billion, announced in an August letter it would return outside capital to investors because of a ”prolonged legal situation.
Hong Kong’s Securities and Futures Commission alleged that Tiger Asia was given advance notice by third parties of forthcoming share placements by the two Chinese banks and shorted shares in the stocks ahead of the placements being publicly announced.
Hwang, who was Robertson’s top Asia manager, founded Tiger Asia in 2001 using $16 million of Robertson’s own money. But he suffered a string of high-profile losses in recent years, including hits from the bankruptcy of Lehman Brothers and the failed merger attempt by Porsche and Volkswagen AG.
Tiger Asia, based in New York, had no physical presence in Hong Kong. Over the course of the fund’s life, it returned an average of 16 percent a year, but its returns were volatile
For his part, Robertson appeared to bear no hard feelings. Early last month, he helped three of Hwang’s former deputies from Tiger Asia - none of them connected to the current case - start another fund, Tiger Pacific Capital, investing an undisclosed amount.
The case against Hwang is the third insider trading inquiry handled recently by federal prosecutors in New Jersey. That state’s U.S. Attorney’s office is gaining ground traditionally held by the U.S. Attorney in Manhattan, which handles the lion’s share of insider trading prosecutions. New Jersey’s prosecutors have recently become more aggressive in pursuing insider trading cases.
The case against the fund was brought in New Jersey because its back office operations are carried out there and Hwang is a New Jersey resident, a spokesman for the New Jersey U.S. Attorney said.
The case is USA v. Tiger Asia Management, United States District Court District of New Jersey.
(The story corrects 14th paragraph to say Robertson helped three (not two) former Hwang deputies by investing an undisclosed amount (not $2.6 billion) in a fund they were starting. Also clarifies that the three are not linked to case against Hwang and Tiger Asia)
Reporting By Emily Flitter in New York and Svea Herbst-Bayliss in Boston; Editing by Steve Orlofsky