Rongsheng settles over insider trading claim

China Rongsheng Heavy Industries Group said it has reached a settlement over alleged insider trading, and experts noted Tuesday that it may clear a hurdle for one of the largest ever overseas acquisitions by a Chinese company.

The US Securities and Exchange Commission filed a complaint in July saying that Well Advantage, a firm controlled by Rongsheng Chairman Zhang Zhirong, had reaped huge profits by using insider knowledge of the $15.1 billion bid for US-listed Canadian energy company Nexen offered by CNOOC, China's largest offshore oil producer.

Rongsheng is a leading shipbuilder and marine engine producer in China, and CNOOC is one of its major clients.

Rongsheng said in a filing with the Hong Kong bourse Monday that it has agreed to pay a total of $14.25 million to resolve the complaint filed by the SEC, which is double the amount said to have been made from the insider trading.

"Typically, reaching a settlement in these cases is cost- and time-efficient and also may address concerns of confidentiality and the amount of penalties as a result of cooperation with the investigating agency," Gentry Sayad, chief representative at the Shanghai representative office of US-based law firm Fredrikson & Byron, told the Global Times Tuesday.

CNOOC announced its bid for Nexen on July 23, with Well Advantage having bought over 830,000 shares in Nexen on July 19, just two trading days ahead of the announcement. Well Advantage then sold all its shares in Nexen on July 26, by which time they had surged by 45 percent.

The alleged insider trading has cast a shadow over CNOOC's acquisition of Nexen, whose review process has been extended twice since the bid was announced.

"Rongsheng's settlement with the SEC has cleared a potential hurdle for the Nexen acquisition deal," Ji Li, an analyst at research company Zero2IPO Group, told the Global Times Tuesday.

Ji noted that if CNOOC had been found to be involved in the insider trading, the deal would be in jeopardy.

Rongsheng said in the filing that Well Advantage had neither admitted nor denied the allegations, but Ji noted that the publicity will surely dampen Rongsheng's public image.

Rongsheng's shares on the Hong Kong Stock Exchange fell 18 percent after media reports on July 30 about the SEC insider trading investigation.

This is not the first time that Chinese people have been involved in allegations of insider trading in the US. The SEC filed a law suit against four Chinese citizens in December 2011, claiming that they had taken advantage of information about a deal by UK-based educational company Pearson Plc to take over Global Education & Technology Group.