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HONG KONG—The U.S. Securities and Exchange Commission has brought charges of insider trading in a civil case against a former employee of private-equity firm TPG Capital and his cousin, related to two health care takeovers involving the firm.

The SEC alleged in a complaint that Zhichen Zhou, of Beijing, China, made illegal profits of about $300,000 from trading in MedAssets, Inc. and Chindex International Inc. before their being taken over. The regulator alleged Mr. Zhou bought stock in both companies before it was made public that they would be acquired by private-equity firms. After the announcements, the stock prices of both companies jumped and Mr. Zhou sold shares at a profit, the SEC said.

In both cases, one of the bidders for the health care companies was TPG Capital, the former employer of the other defendant—and Mr. Zhou's cousin—Yannan Liu, a resident of Hong Kong.

"We have commenced our own internal investigation and will not tolerate any misappropriation of information," said a spokesman for TPG. "We are cooperating fully with the SEC on this matter."

Contacted by phone on Wednesday, Mr. Liu told The Wall Street Journal, "There is some misunderstanding here and what I can tell you now is we are trying to communicate with [the] SEC for this matter." He didn't elaborate.

Mr. Zhou couldn't immediately be reached for comment.

Mr. Liu, who subsequently became chief executive of peer-to-peer lending platform Yooli.com, provided nonpublic, material information about the acquisitions to Mr. Zhou as well the bulk of the funds for him to trade, the SEC alleged. According to the SEC, Mr. Liu worked for TPG between Aug. 1, 2011 and May 11, 2012 as a venture capital and private-equity associate. It said Mr. Liu' s "association with TPG Capital put him in a position to obtain material, nonpublic information about the acquisitions" and that he "maintains a personal relationship with at least one private equity professional who works at TPG Capital in the Beijing office."

Mr. Liu, who is British-educated, left Yooli.com in September, where he kept a basketball and sweat clothes in his office. He has since founded another peer-to-peer lending platform, Meili Jinrong, of which he is chief executive.

MedAssets, a Nasdaq-listed health care and technology services company based in Georgia, agreed to be bought on Nov. 2 by Pamplona Capital Management in a deal worth roughly $2.7 billion including debt. The offer, made at a 32% premium to the stock's price at the close of the previous trading day, caused the stock to rise more than 30% on Nov. 2, the SEC said. TPG had been among the final two bidders for MedAssets, the SEC said.

The regulator alleged Mr. Zhou had earlier used a newly opened brokerage account to buy 40,000 MedAssets shares, which were valued at "more than four times [his] stated net worth." It alleged Mr. Liu had provided the bulk of those funds to Mr. Zhou who, it said, works as a website administrator for Yooli.com.

The SEC also alleged that Mr. Zhou had profited from trades in Nasdaq-listed Chindex International last year, again using information provided by his cousin, Mr. Liu. A consortium involving TPG, that also included Shanghai Fosun Pharmaceutical Group Co. and Chindex's Chief Executive Roberta Lipson, offered to buy out Chindex for $369 million on Feb. 17, 2014, after which its stock rose more than 13%. Chindex operates the United Family Healthcare chain of high-end private hospitals in cities such as Beijing and Shanghai.

The SEC alleged Mr. Zhou had bought 3,000 shares in the company in the lead up to the announcement, making a $7,500 profit when he sold the shares a week after the announcement.

"These facts demonstrate that there is strong circumstantial evidence of insider trading by [Mr.] Zhou and [Mr.] Liu," the SEC said in its complaint.

The consortium involving TPG eventually agreed to acquire Chindex in April last year for $433 million, having raised its offer for the company.

The SEC has looked at trading activity by Chinese residents before in civil cases.

In April, the regulator announced charges against two Beijing residents, alleging they bought stock options ahead of Chinese e-commerce company 58.com's purchase of a $1.6 billion minority stake in rival Ganji.com. In September, the defendants together agreed to pay nearly $2.77 million to settle the charges, according to court documents.

In June, the regulator got a court order to freeze the assets of a China-based trader while it investigated what it called suspicious activity ahead of a $9 billion buyout offer for U.S.-listed Chinese company Qihoo 360 Technology Co. No resolution has been announced.

A hearing in the case of Messrs. Zhou and Liu is scheduled for Nov. 24. The U.S. District Court for the Southern District of New York granted the SEC's request to freeze the assets in Mr. Zhou's U.S. brokerage accounts. The securities regulator is seeking permanent injunctions, disgorgement and other civil penalties.

Olivia Geng contributed to this article.

Write to Julie Steinberg at julie.steinberg@wsj.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

November 11, 2015 07:55 ET (12:55 GMT)

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