CALVIN Zhu was a migrant success story arriving in Australia with his family as a 10-year-old, getting a university education in finance, and then 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 a New South Wales court yesterday has put the spotlight back on the knowledge and activities of senior executives at Hanlong Mining, where Zhu was working, including current serving executives (see inside story). Hanlong Mining is negotiating a $1.6 billion takeover of listed Australian miner Sundance Resources, and it was suspected insider trading in Sundance, and another Hanlong takeover target, Bannerman Resources, that set off alarms at ASIC.
Zhu's offences date back to late 2006, when he was an executive at 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 the listed Australian credit reference company, Veda Advantage, which was subject to a proposed takeover by Pacific Equity Partners.
Because of the information he gained about the takeover proposal, he procured a friend, Mr 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 at Credit Suisse in 2008, he used inside information about the proposed takeover of Funtastic 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 a profit of $1.25 million, of which Zhu's share was $305,000.
In all of 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 China's Sichuan Hanlong Group, Zhu was invited by the company's managing director, Steven Xiao, to co-invest in a private fund for the purpose of making profit. Mr Xiao, who is also under investigation for alleged insider trading, has fled Australia.
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 2011. They didn't expect it to be accepted but it enabled them to embark on insider trading.
Zhu will appear in the NSW Supreme Court next month.
Frequently Asked Questions about this Article…
Who is Calvin Zhu and what insider trading charges did he plead guilty to?
Calvin Zhu is a former investment banker and executive vice‑president at Hanlong Mining who pleaded guilty to three charges of prohibited conduct while in possession of inside information. The offences occurred during his roles at Caliburn Partnership, Credit Suisse and Hanlong Mining.
Which companies and takeover deals were linked to the insider trading in the article?
The article links the insider trading to activity around several listed Australian companies and takeover proposals, including Veda Advantage (Pacific Equity Partners proposal), Funtastic (Archer Capital proposal), the Adelaide Managed Funds Asset Backed Yield Trust (Bendigo and Adelaide Bank proposal), and suspected insider trading around Hanlong targets Sundance Resources and Bannerman Resources.
How did Zhu carry out the insider trading and hide his activity?
According to the court material, Zhu procured friends to open trading accounts and acquire securities and derivatives on his behalf. One example was opening a CommSec account in the name of a friend’s mother, Ming Fei, to trade products related to Veda Advantage.
How much profit did Zhu make from the insider trading schemes?
The total gain from the three charges was more than $371,000. Court material breaks this down roughly as about $55,814.50 from trades linked to Veda Advantage, about $10,459 from trades while at Credit Suisse, and about $305,000 from five transactions tied to Hanlong takeover targets.
Did regulators and the courts get involved in the Hanlong insider trading matter?
Yes. Evidence was tendered in a New South Wales court and the trading activity set off alarms at the Australian Securities and Investments Commission (ASIC). The case has shone a spotlight on senior executives at Hanlong Mining and related investigations.
What happened to other Hanlong executives mentioned in the article?
The article says Hanlong’s managing director Steven Xiao is also under investigation for alleged insider trading and that he has fled Australia. It also notes evidence has focused attention on other senior executives at Hanlong Mining.
What practical lessons should everyday investors take from this insider trading case?
Everyday investors should be aware that takeover activity can attract unlawful insider trading and that unusual trading before announcements is a red flag. Staying informed about company announcements, watching for suspicious volume or price moves around takeover news, and relying on regulated disclosure and official announcements can help protect your investments.
When is Calvin Zhu due to appear in court next?
The article states Zhu is scheduled to appear in the New South Wales Supreme Court next month.
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