Friends Accused of Trading on Data for Edgar Face Widening Probe

The FBI swooped in and arrested two men who were the focus of an insider trading investigation just hours before they were set to board a flight to Hong Kong. Justin Chen, 31, and Jun Zhen, 29, are accused of pocketing at least $1 million by exploiting confidential information obtained from their job at New York-based EdgarAgents.com, which helps prepare company filings for the Securities and Exchange Commission's (SEC) Edgar system.

Prosecutors claim that Chen and Zhen accessed proposed filings on at least four companies before they became public: Ondas Holdings Inc., Purple Innovation Inc., Signing Day Sports Inc., and SigmaTron International Inc. They allegedly used this non-public information to make trades in these companies, reaping significant profits.

The Scheme

According to prosecutors, Chen and Zhen obtained material, nonpublic information ahead of announcements like mergers that resulted in significant increases in the share price of each company's stock. This was an "incredibly brazen scheme" as Axelrod described it in court.

Prosecutors say that Chen, who made $100,000 a year, had worked at EdgarAgents.com since 2020 and had experience handling Edgar data since 2012, according to his LinkedIn profile. His sister also worked at the company. The two men allegedly traded aggressively using this inside information.

The Investigation

The SEC brought enforcement cases against several people who were accused of hacking into third-party companies that dealt with the Edgar system in 2021. This case is a continuation of those investigations, highlighting ongoing problems with how confidential information can be obtained by insiders before it's publicly released on the Edgar database.

At the two court hearings following their arrests, prosecutors portrayed Chen and Zhen as two men who should not be given bail while the case proceeds, pointing to texts that suggested they were planning to flee the country. However, Magistrate Judge Peggy Kuo was skeptical of this argument, suggesting that Chen may have meant he needed to "get out" of his trading position rather than getting out of the US.

The Charges

Neither man has entered a plea at this point in the proceedings. Lawyers for both men declined to comment on the charges. The case is ongoing, with prosecutors saying that they are investigating whether Chen and Zhen traded information in at least six more companies.

Chen was released on a $1 million bond, guaranteed by his mother and sister, while Zhen remains in custody as of Saturday morning, according to federal Bureau of Prisons records. The case highlights the ongoing challenges of preventing insider trading and securing confidential information before it becomes publicly available.

The Role of EdgarAgents

EdgarAgents Chief Executive Officer Stephen Bonventre said that the company was cooperating with the US investigation, adding that "the alleged activities run completely counter to our company values and the integrity with which we've built our business."

The SEC declined to comment on the case. However, Axelrod mentioned that the agency detected suspicious trading in other companies, which is now part of the government's ongoing criminal investigation.