According to the SEC Order, in 20, Cheetah Mobile “earned up to one-third of its revenues by placing within its applications third-party advertisements provided by its largest advertising partner” which was a division of a major social medial platform. The SEC’s Order Instituting Cease-and-Desist Proceedings (the “SEC Order”) against Fu and Xu found that Fu and Xu violated the antifraud provisions of the Securities Exchange Act of 1934 (the “Exchange Act”) and that Fu also 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. This case reflects the SEC’s recent heightened scrutiny of trading by executives and potential abuses of Rule 10b5-1 plans and highlights the importance of adhering to best practices when entering into such plans. However, the SEC determined that their plan did not shield them from liability because they entered into the plan only after becoming aware of material non-public information - a significant drop-off in advertising revenues from the Company’s largest advertising partner. Notably, the trades at issue - sales totaling 96,000 shares to avoid losses of approximately $203,290 and $100,127, respectively, in advance of a negative disclosure - were made pursuant to a Rule 10b5-1 plan that the two executives had jointly established. (“Cheetah Mobile” or the “Company”) with insider trading for selling Cheetah Mobile American Depository Shares while in possession of material nonpublic information. Securities and Exchange Commission (“SEC”) charged the CEO, Sheng Fu, and former president, Ming Xu, of Chinese-based technology company Cheetah Mobile Inc.
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