No doubt Eric will be able to appeal any conviction, based on the cultural differences between Australia and China. In China corruption is king. Insider trading rewards those who network most within a corrupt regime. Why should our courts uphold Australian cultural standards and laws? Just as Muslim men can rape our women and claim cultural ignorance. Maybe Family First can lead the charge on this one As Eric was prepared to leave his family and children behind but not his frequent flyer point. Copy & Paste AUSTRALIAS biggest insider trading investigation would have hit a brick wall were it not for one fateful decision by fugitive businessman Steven Xiao. Eager to hang on to the frequent flyer points he had accrued over the course of a high-flying lifestyle, Xiao, seemingly beyond the reach of Australian authorities in China and now going by the first name Eric, applied to have his old frequent flyer account transferred to his new name. It was at that moment, The Weekend Australian understands, that investigators confirmed the link between Xiaos two identities and set in train a series of events that culminated in Xiaos arrest as he tried to drive across the China-Hong Kong border late last Sunday night. Xiao is the alleged mastermind behind what is said to be the largest insider trading scheme identified in Australia, having been wanted on 104 charges relating to his time as the managing director of Hanlong Group in Australia. He and three of his senior colleges at Hanlong are alleged to have orchestrated a series of trades in Sundance Resources and Bannerman Resources in mid-2011, in the knowledge that Hanlong was about to make takeover bids for the pair. Mr Xiao fled Australia in late 2011 while under investigation, leaving behind his wife and two children after being granted court permission to return to China for two days for his university thesis. Based in China and going under a new name, Mr Xiao was able to rebuild his professional career. He secured a senior position at Chinese-backed, Hong Kong-based investment advisory group Oriental Patron, holding the title of managing director investment. His biography on the Oriental Patron website, since removed, describes glowingly his extensive investment, financing and operating experience in the international mining markets and his history of directorships at a number of listed mining companies. Now, Mr Xiao faces becoming the second former Hanlong executive to head to jail. Former investment director at the company, Calvin Zhu, was sentenced to two years and three months in prison for his role in the scheme. An affidavit filed by Zhu at his trial last year paints Mr Xiao as the instigator of the trading. It was Mr Xiao, Zhu said, who pitched the plan for the two men alongside Hanlong director Nelson Chen and the groups chief financial officer Simon Yang to set up the investment fund that executed much of the insider trading. The Weekend Australian can reveal that the case against Mr Xiao goes well beyond the trading carried out by the Hanlong executives fund. It is understood that authorities will allege Mr Xiao carried out extensive insider trading in Sundance and Bannerman through a number of other accounts, some of which are based overseas. It is believed that regulators in Singapore, the US and Canada are also investigating whether accounts in those countries linked to Mr Xiao were used to carry out insider trading. The tax office is watching the progress of Mr Xiaos extradition closely, with members of the Project Wickenby task force having played a part in the investigation. The profits Mr Xiao is alleged to have made from his own insider trading are said to be several times those derived by the Hanlong executives syndicate. At Zhus trial, that syndicate was found to have made about $1.9 million from its trades. Mr Xiaos arrest represents a major breakthrough for the Australian Securities & Investments Commission. The Hanlong insider trading investigation is the largest of its kind the corporate watchdog has carried out, in terms of the time and money spent and the number of personnel devoted to it. Its significance also lies in the seniority of the executives allegedly involved. This was no case of opportunism by a layman who happened to pick up and trade on a snippet of sensitive information; the allegations suggest organised and deliberate market manipulation and insider trading by the very gatekeepers of Hanlongs takeover bids. Zhus affidavit spelt out in detail how Hanlongs $143m takeover bid for Bannerman was conceived for the predominant purpose of the creation of inside information in relation to Bannerman and to enable the syndicate to engage in insider trading. He also described how, the night before Hanlong lodged its formal $1.3 billion bid for Sundance, Mr Xiao pulled Zhu away from a dinner with Sundance executives to instruct him to start buying up Sundance shares. The case represents the first time Australian authorities have tried to extradite an individual on insider trading charges. Desperate not to lose their man for a second time, investigators would have known they had to be especially thorough and precise when compiling their case for Mr Xiaos arrest and extradition. If the investigators needed a reminder of the challenges around extradition, it came in June last year mid-way through their preparations, when the proposed extradition from Hong Kong of the National Security Agency leaker Edward Snowden fell over because of errors in the paperwork filed by the US Justice Department. In that instance, Mr Snowden was allowed to fly to Moscow because the US filed documents with differences in the wanted mans middle name. While rumours first surfaced about Mr Xiaos presence in Hong Kong last March, it was not until November that investigators felt sufficiently confident to request a warrant for his arrest. It was November 23 when the warrant was formally issued, but Mr Xiao had left Hong Kong a week earlier. The authorities had good reason to believe it would only be a matter of time before he returned to Hong Kong, as Mr Xiao had been living a lifestyle that took him to all corners of the world in spite of his fugitive status. His travels are understood to have become increasingly expansive over time. Under his new name, he ventured first to Macau, then Mongolia, the Middle East, France, the US and Africa. No fewer than seven times he travelled to Hong Kong, with the frequency of his visits and the increasing length of his time abroad suggesting confidence that he was beyond the reach of Australian authorities. Mr Xiaos business travel even took him to a remote corner of Chile. Photographs on an online forum show him standing alongside Cicardini Maglio, the Mayor of Copiapo in Chiles north, with the pair holding miniature China and Chile flags as they discuss mining and desalination opportunities. For as long as he stayed in China, Mr Xiao was safe. There is no extradition treaty between Australia and China, meaning he could have feasibly stayed there without any fear of the charges facing him back in Australia. But given his history and lifestyle, authorities suspected he wouldnt be able to stay in China forever. Details of Mr Xiaos high-flying lifestyle emerged during Zhus trial last year. Zhu detailed the extremely extravagant lifestyle they enjoyed while running Hanlong. I spent over 200 hours in six months travelling the world, Zhu said in his affidavit. I always travelled business class and sometimes first class. I stayed at the best hotels in every country. In Hong Kong, I always stayed in the VIP rooms of the Shangri-La, which cost $1000 per night. Steven Xiao and I also ate at the best restaurants twice a day and easily spent over $3000 per day on food and drinks. Zhu also described how Mr Xiao had bought a top of the range Audi Q7 and Audi S5, cars that cost more than $130,000 each in Australia, for the pair to use while they were working in Beijing. Apart from his professional re-birth at Oriental Patron, Mr Xiao also managed somewhat to rebuild his family life. As a condition of his original departure from Australia in late 2012, his wife and two children were forbidden from leaving the country. But only the passport of his wife, Xike Hu, was surrendered. At a court hearing in mid-2012, as Ms Hu sought to have her passport returned, it emerged that Mr Xiaos parents had travelled to Australia and left with his one-year-old son. His elder child, a daughter, was left with Ms Hu. The efforts to have the passport returned were denied, with the judge hearing the case noting that the court would be seen as a laughing stock if it agreed to the return. By mid-last year, Ms Hu had managed to divorce Mr Xiao in Australia. That step cleared the way for Ms Hu to have her passport returned. Given the apparent breakdown in the relationship between the pair, there were raised eyebrows when it emerged that Mr Xiao had been arrested in Hong Kong in the company of a woman purporting to be his wife. It is unclear at this stage whether that woman is Ms Hu, but a declaration of divorce from Australia would not have any bearing on a marriage first registered in China. Australian authorities have until February 24 to fine-tune their case for Mr Xiaos extradition, when the former Hanlong executive is due back in court in Hong Kong. The case will rely heavily on evidence gathered over the past 2 1/2 years, but also on the testimony that Zhu offered during his trial. Zhu blames Mr Xiao for shaping his views around the acceptability of the insider trading, describing how Mr Xiao would ridicule him at social gatherings about his belief that the practice was unacceptable. It remains to be seen what implications Mr Xiaos potential return to Australia has for the other two members involved in the Hanlong executives syndicate. The investigations into Nelson Chen and Simon Yang were suspended owing to a lack of evidence. Both men continue to live in Australia and are still employed by Hanlong. Mr Chen was recently promoted to the chairmanship of the ASX-listed iron ore miner Moly Mines which is majority owned by Hanlong. Authorities will be hoping that Mr Xiaos potential trial opens up sufficient evidence to reinstate the investigations of Mr Chen and Mr Yang. Both men are understood to be outside Australia at the moment in the lead-up to Chinese New Year celebrations. Assuming Mr Xiao is brought back to Australia, prosecutors are expected to push for a significant jail sentence. Zhu agreed early on to plead guilty to his charges, and was sentenced to 27 months in jail. The charges Mr Xiao faces dwarf those against Zhu, and his decision to ignore the court order and remain in China is unlikely to elicit much sympathy from the court. If found guilty, he wont be able to enjoy those frequent-flyer points for some time. theaustralian.au/business/how-frequent-flyer-points-helped-land-a-fugitive-steven-xiao/story-e6frg8zx-1226804591472
Posted on: Fri, 17 Jan 2014 20:34:13 +0000
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