Executives Sold Securities through a Purported 10b5-1 Trading Plan
FOR IMMEDIATE RELEASE
2022-169
Washington D.C., Sept. 21, 2022 —
The Securities and Exchange Commission today charged the CEO of Cheetah Mobile Inc. and the company’s former President with insider trading for selling Cheetah Mobile’s securities, pursuant to a purported 10b5-1 trading plan, while in possession of material nonpublic information. The SEC’s order finds that Sheng Fu, the company’s CEO, and Ming Xu, its then-President and Chief Technology Officer, jointly established a purported 10b5-1 trading plan after becoming aware of a significant drop-off in advertising revenues from the company’s largest advertising partner.
According to the SEC’s order, in 2016, Sheng Fu and Ming Xu sold 96,000 Cheetah Mobile American Depository Shares under the trading plan and avoided losses of approximately $203,290 and $100,127, respectively. Cheetah Mobile is based in China and offers various technology products, including mobile games and other applications.
“This case serves as yet another example of the SEC’s resolve to hold executives accountable when they try to skirt federal securities laws to illegally trade on nonpublic information,” said Joseph G. Sansone, Chief of the SEC Enforcement Division’s Market Abuse Unit. “While trading pursuant to 10b5-1 plans can shield employees from insider trading liability under certain circumstances, these executives’ plan did not comply with the securities laws because they were in possession of material nonpublic information when they entered into it.”
The order also finds that Sheng Fu made materially misleading public statements about Cheetah Mobile’s revenue trends during the company’s March 2016 earnings call and caused the company’s failure to disclose a material negative revenue trend in its April 2016 annual report.
According to the SEC’s order, Sheng Fu and Ming Xu violated the antifraud provisions of the Securities Exchange Act of 1934, and Sheng Fu violated the antifraud provisions of the Securities Act of 1933 and was a cause of Cheetah Mobile’s violations of issuer reporting requirements under the Exchange Act. Without admitting or denying the SEC’s findings, Sheng Fu and Ming Xu agreed to cease-and-desist orders, undertakings relating to their future securities trading, and to pay civil penalties of $556,580 and $200,254, respectively.
The SEC’s investigation was conducted by Rachael Clarke and Simona Suh of the Market Abuse Unit, with the assistance of Kenneth Gottlieb of the SEC’s New York Regional Office and John Rymas of the Market Abuse Unit’s Analysis and Detection Center. The case was supervised by Mr. Sansone.
More information regarding 10b5-1 trading plans can be found here.