Some stock traders know how to take advantage of a “bare” market.
The brother of a former employee of the cosmetics company Bare Escentuals overheard his sister talking about a then-secret acquisition of the San Francisco firm and took that insider information to the stock market.
Problem is, that was illegal, according to the Securities and Exchange Commission, which announced that San Francisco resident Zhenyu Ni, 36, has agreed to pay more than $300,000 in penalties for his offense.
In March, the Japanese company Shiseido Co. completed its acquisition of Bare Escentuals. Three months earlier, Ni had visited his sister and was inside her office as she took calls about the acquisition. He heard key terms, such as “due diligence file,” “potential buyer” and “merger structure,” according to a complaint from the SEC.
In a matter of weeks, Ni bought thousands of securities and stocks, spending almost $165,000, according to the complaint. After the merger went public on Jan. 14, Ni unloaded the investments for a profit of $157,066.
“Using confidential information learned from a close family member for personal gain can run afoul of the federal securities laws,” Marc Fagel, the director of the SEC’s San Francisco regional office, said in a statement. “The integrity of our markets is threatened when individuals with access to inside information siphon trading profits from other investors.”
Without admitting or denying the charges, Ni has agreed to pay $314,681 to settle, according to the SEC. His sister’s name was not released.
Calls and e-mails to Bare Escentuals were not returned Wednesday.