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.
ROUGH TRADE
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
CFDs.
July 18, 2011 Sundance announces Hanlongs takeover bid.
Veda trades: $81,000
Funtastic and AYT trades: $10,460
Bannerman and Sundance trades: $1.3m
TOTAL: $1.3m
ZHUS SHARE: $370,000
Frequently Asked Questions about this Article…
Who is Calvin Zhu and what insider trading charges did he plead guilty to?
Calvin Zhu was an executive vice-president at Hanlong Mining and previously worked in investment banking at Caliburn Partnership and Credit Suisse. He pleaded guilty to three charges of prohibited conduct while in possession of inside information, admitting he procured friends and family to open trading accounts and buy securities and derivatives based on confidential takeover information.
Which companies and takeover targets were involved in the insider trading described in the article?
The article names several takeover targets tied to Zhu’s trading: Veda Advantage, Funtastic Limited, the Adelaide Managed Funds Asset Backed Yield Trust (AYT), Bannerman Resources and Sundance Resources. His employers at the time included Caliburn Partnership, Credit Suisse and Hanlong Mining.
How did Calvin Zhu carry out the insider trades and what trading instruments were used?
According to court material, Zhu used inside information to instruct friends, relatives and a company he controlled to buy contracts for difference (CFDs), shares and fund units. He arranged for others to open brokerage accounts (for example at CommSec) in third parties’ names to execute the trades.
How much money did the insider trading net Calvin Zhu?
The article reports the insider trading activity realised about $1.3 million in total across the deals, with Zhu’s personal share being roughly $370,000–$371,000 from the transactions described.
What employers and senior colleagues at Hanlong are mentioned in the court evidence?
Court statements highlight Zhu’s roles at Caliburn, Credit Suisse and Hanlong Mining. Hanlong’s managing director Steven Xiao is named as having invited Zhu to co-invest in a private fund and is under investigation but has fled Australia. The chief operations officer Nelson Feng Chen and chief financial officer Simon Yang were also invited to co‑invest.
What prompted regulator attention and was ASIC involved?
Surveillance by the Australian Securities & Investments Commission (ASIC) was alerted after suspected insider trading in takeover targets such as Sundance Resources and Bannerman Resources, which brought the activity to regulators’ attention.
What is the legal status of Calvin Zhu’s case following the guilty pleas?
Zhu pleaded guilty to the three charges and is due to appear in the NSW Supreme Court next month, according to the article. The court evidence and statement of facts were tendered in the Downing Centre Local Court.
What timeline of the insider deals does the article outline for everyday investors to understand?
The article traces key dates: December 8, 2006 (Veda-related trades at Caliburn), January–March 2007 (Veda takeover announcement and cessation of trading), August 2008 (Funtastic-related trades while at Credit Suisse), February 2009 (AYT trades), and July 2011 (Bannerman and Sundance trades while at Hanlong). These dates show the deals occurred over several years and across different employers.
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