Charlie Jinan Chen, a Boston restaurant owner, is accused of insider trading of Vistaprint stock after illegally receiving confidential information from a former Vistaprint employee. His wife, Shui Foon Mak, is also being charged for her part in reaping the illegal profits, which are believed to be in excess of $850,000. But, how did this all work?
Insider Information Leaked from 2012-2014
Vistaprint is an eCommerce platform that specializes in selling customizable business materials and other products. From 2012-2014, Chen received insider information from an employee of Vistaprint, identified only as “Jenny” in court documents. Jenny was an accounting manager that reportedly handled Vistaprint’s quarterly financial statements, which included confidential information that would remain unavailable to the public prior to a set date for release. It was this information that Chen allegedly used to generate fraudulent profits.
According to the SEC, Chen participated in what is known as “put and call” trading, which essentially involves betting on future stock prices; bet correctly and earn the profits. At the close of each quarter, Jenny would prepare and finalize Vistaprint’s quarterly reports and then provide Chen with the information before it became public. This allowed him access to knowledge that other Vistaprint investors were not privy to, creating an unfair advantage and compromising the integrity of the market. The former Vistaprint employee, Jenny, would eventually resign in 2015.
Investments, Fraud, and Profits
In order to take advantage of his insider information, Chen reportedly invested a majority of his wife’s retirement money. He then used the funds in his brokerage account, $105,000, to bet against Vistaprint stock before the release of one of their worst quarterly reports in the history of the company. Chen bet correctly and reaped the benefits. For two years, Chen would participate in similar fraudulent acts involving Vistaprint stock, eventually amounting in profits of $850,000. During these years, Vistaprint was unaware of the employee’s leaked information.
The Trial Against Chen and Pending Indictments
The SEC complaint also mentions Chen’s wife, Shui Foon Mak, for her part in this scheme, however Chen is the largest player in the fraud and is currently on trial. For Chen, trial began early this week and is expected to last until early next week. If found guilty of securities fraud, Chen could face a sentence of up to 20 years in prison and a fine of up to $250,000. The case against Chen appears to be strong, with David H. London of the SEC informing the jury, “He wasn’t lucky, he didn’t do careful financial research and he wasn’t smarter than other investors,”. He added, “He made this money because he had unfair and illegal advantage. He cheated.”
However, Chen’s attorney, Valerie S. Carter, claims, “The government can’t believe that the little guy beat Wall Street, but the evidence will show that’s exactly what happened,” and “he did it without help from his friends or anyone else.”. Carter also stated that Chen was able to bet successfully due to the amount of information that Vistaprint provides openly to the public. Surprisingly, the former Vistaprint employee, Jenny, will not be testifying in this case.
Nevertheless, there are only a few days left of the trial against Chen, and a verdict will soon be reached. Upon closing the case against Chen, his wife will await trial for her participation in the scheme.
In the meantime, it is important to consider the effect that this case and similar cases have on the integrity of the securities market. Chen’s access to inside information gave him an illegal and unfair advantage. While he reaped the profits, other Vistaprint investors were not so lucky, and the market itself was compromised. For this reason, it is important that fraudulent activities of this nature cease and that the individuals who are aware of these activities come forward.
To learn more about this case or to keep up-to-date on similar cases, visit the Jeffrey Newman Law Whistleblower Help Center and blog!