CALVIN ZHU was a migrant success story - arriving in Australia with his family as a 10-year-old, receiving a university education in finance, and by the age of 30 holding the lofty title of executive vice-president with Hanlong Mining.
Yesterday Zhu was revealed as a serial inside trader, pleading guilty to three charges of prohibited conduct while in possession of inside information, which reaped him more than $371,000.
The transactions occurred during his investment banking career at two firms, Caliburn Partnership and Credit Suisse, and later as an executive of Hanlong Mining.
Evidence tendered in the Downing Centre Local Court yesterday has put the spotlight back on the knowledge and activities of senior executives at Hanlong Mining, where Zhu was working, including serving executives (see story Page 4).
Hanlong Mining is negotiating a $1.6 billion takeover of Sundance Resources, and it was suspected insider trading in Sundance and another target, Bannerman Resources, set off alarms in the Australian Securities & Investments Commission's surveillance operations.
Zhu's offences date back to late 2006, when he was an executive in the corporate finance advisory division at the advisory firm, Caliburn. Zhu had progressed in the Caliburn pay ranks, receiving a salary of $119,000 plus a $60,000 bonus within 10 months of starting. Caliburn was asked to advise Australian credit reference company Veda Advantage Ltd, which was subject to a proposed takeover by Pacific Equity Partners. Because of the information he gained about the takeover, he procured a friend, Fei Yu, to open a trading account with CommSec in the name of Mr Fei's mother, Ming Fei. They bought financial products relating to Veda, deriving $81,483 profit, less costs, of which Zhu's share was $55,814.50.
When later employed as an associate at Credit Suisse in 2008, he used inside information about the proposed takeover of Funtastic Limited by Archer Capital, and also the proposed takeover of the Adelaide Managed Funds Asset Backed Yield Trust by Bendigo and Adelaide Bank. Those transactions netted Zhu $10,459, less $6900 for the avoidance of losses.
The third charge related to his employment as vice-president, investments, at Hanlong Mining. In five transactions relating to Hanlong takeover targets, the insider trading realised an all up profit of $1.25 million, of which Zhu's share was $305,000.
In all three charges, he pleaded guilty to procuring various friends to open trading accounts and acquire securities and derivatives.
In September 2010, two months after joining Hanlong Mining, an Australian subsidiary of the Chinese conglomerate Sichuan Hanlong Group, Zhu was invited by the managing director, Steven Xiao, to co-invest in a private fund. Mr Xiao, also under investigation for alleged insider trading, has fled Australia. Mr Xiao also invited the chief operations officer, Nelson Feng Chen, and chief financial officer, Simon Yang. A statement of facts tendered in court said that without Sichuan Hanlong's permission, Mr Xiao and Zhu made a highly conditional proposal to Bannerman Resources in April last year. They didn't expect it to be accepted but it enabled them to embark on insider trading.
On July 1, 2011, Mr Xiao and Mr Yang transferred $US1 million ($928,591) from Hanlong Metals for trading in Bannerman and Sundance shares. The transfer was recorded as a loan in the Hanlong Metals records.
Zhu will appear in the NSW Supreme Court next month.
HOW THE INSIDER DEALS WERE DONE
December 8, 2006 Calvin Zhu, working at boutique investment bank Caliburn, knows Pacific Equity Partners is going to make a bid for credit rating agency Veda Advantage. He instructs his friends Fanfan Chen and Fei Yu to start buying contracts for difference (CFDs) over Veda Advantage.
January 30, 2007 Veda Advantage tells the ASX it has received a takeover offer from Pacific Equity Partners.
March 30, 2007 The syndicate stops buying Veda Advantage CFDs.
August 14, 2008 Zhu, working at Credit Suisse, has inside information about the state of Archer Capitals bid for toy company Funtastic. He tells Ms Chen to sell Funtastic CFDs.
August 19, 2008 Funtastic announces the deal has collapsed.
February 13, 2009 Zhu, still at Credit Suisse, knows that the Bendigo and Adelaide Bank is to make a takeover bid for Adelaide Managed Funds Asset Backed Yield Trust (AYT). He instructs Ms Chen to buy units in the fund.
February 16, 2009 AYT announces the Bendigos takeover bid.
July 6-8, 2011 While vice-president of Hanlong Mining, Zhu knows his employer is planning to take over Bannerman Resources. He instructs Ms Chen, his mother-in-law Jing Juan Zhao and his company, Wingatta, to buy Bannerman shares and CFDs.
July 11, 2011 Bannerman announces Hanlongs takeover bid.
July 13-15, 2011 Knowing Hanlong intends to take over Sundance Resources, he instructs Ms Chen and Wingatta to buy Sundance
July 18, 2011 Sundance announces Hanlongs takeover bid.
Veda trades: $81,000
Funtastic and AYT trades: $10,460
Bannerman and Sundance trades: $1.3m
ZHUS SHARE: $370,000