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One of legendary hedge fund manager Julian Robertson’s so-called “Tiger Cubs” was charged will illegal trading in Chinese stocks and agreed to settle the charges, the SEC said in a release yesterday. The SEC alleged that Bill Hwang and his hedge fund Tiger Asia used “a pair of trading schemes” where the first involved using insider information to short sell Chinese stocks and the other manipulating the prices of Chinese stocks.
As a result, the fund was able to reap $16.7 million in illicit profits, the agency said.
Bloomberg News’ David Voreacos reports that Hwang and Tiger Asia agreed to pay $16.3 to settle the criminal charges. Hwang and his hedge fund also agreed to pay $44 million to settle the SEC’s civil charges, the SEC said in its release.
Here’s part of the SEC’s release:
The SEC alleges that Sung Kook “Bill” Hwang, the founder and portfolio manager of Tiger Asia Management and Tiger Asia Partners, committed insider trading by short selling three Chinese bank stocks based on confidential information they received in private placement offerings. Hwang and his advisory firms then covered the short positions with private placement shares purchased at a significant discount to the stocks’ market price. They separately attempted to manipulate the prices of publicly traded Chinese bank stocks in which Hwang’s hedge funds had substantial short positions by placing losing trades in an attempt to lower the price of the stocks and increase the value of the short positions. This enabled Hwang and Tiger Asia Management to illicitly collect higher management fees from investors.
According to Dealbook’s Peter Lattman, Hwang was in Federal District Court in Newark yesterday afternoon where he pleaded guilty to wire fraud on behalf of his hedge fund.
“Hwang today learned the painful lesson that illegal offshore trading is not off-limits from U.S. law enforcement, and tomorrow’s would-be securities law violators would be well-advised to heed this warning,” said Robert Khuzami, Director of the SEC’s Division of Enforcement, said in a statement.
The New York Times’ Lattman points out that this has to be an embarrassment for Robertson who has financed several hedge fund managers, who were former employees of his, known as the “Tiger Cubs.” Some of the prominent Cubs include John Griffin (Blue Ridge Capital) and Lee Ainslie (Maverick).
Hwang founded Tiger Asia in 2001 after working at Tiger Management. He previously worked at Peregrine Securities and Hyundai Securities.
All outside capital was returned to investors earlier this year, Bloomberg News reports.
As an aside, during a volatile 2011, Hwang’s $1.3 billion long/short equity Tiger Asia was one of the best performing large hedge funds in the world with a total return of 8.6%, according to Bloomberg Markets.