Insider Trading Allegations Hit Private Equity

It’s been at least two years since I first began wondering when a private equity pro would get accused of insider trading. Really thought it would happen sooner – and on a grander scale – but better late than never (caught).

The first to fall is Chen Tang, who briefly served as chief financial officer with buyout shop Friedman Fleischer & Lowe. He had previously served as CFO for both Prospect Venture Partners and Tallwood Venture Capital.

Tang and several others were accused last Friday by the SEC of making more than $8 million in “illicit profits from unlawful trades in the securities of Tempur-pedic International, Inc. and Acxiom Corporation.”

Friedman Fleischer & Lowe itself is not named in the complaint. peHUB reached out to a firm spokesman, who said:  

“FFL became aware of this investigation in April of 2008. Immediately after hearing of the SEC investigation, FFL suspended Mr. Tang. Shortly thereafter, his employment was terminated.  FFL has fully cooperated with the SEC in its investigation. FFL has been assured by the SEC that neither FFL nor any of its other employees are implicated in any of the misconduct that is associated with the Complaint.”

The SEC alleges that Tang learned his firm – an existing Tempur-Pedic shareholder with a seat on the company’s board – planned to make a “large, market-moving purchase” of Tempur-Pedic securities, which would be disclosed after Tempur-Pedic pre-announced that it would miss its quarterly earnings forecast. Tang then is said to have tipped off various friends (now co-defendants), who ultimately reaped nearly $2 million by trading on the information.

The Acxiom trades allegedly were based on information from Ronald Yee, who was CFO of San Francisco-based hedge fund ValueAct Capital (which also is not named in the complaint).

The SEC promised to shortly bring several insider trading cases following Galleon, so this really could be just the tip of the iceberg. Really not too surprising, given: (a) How many transactions there were between private equity firms and publicly-traded companies, and (b) How a public company’s trading volume almost always seemed to spike just before being outed as a private equity target.

You can download the SEC complaint here (pdf)