Hong Kong Investment Banker Found Guilty of Insider Dealing as SFC Assert Its Powers

As part of its ongoing vigorous initiative to combat insider dealing, the Hong Kong Securities and Futures Commission successfully concluded an enforcement against an investment banker for insider dealing during an acquisition deal. Judge Andrew Chan found the investment banker, a former managing director at Morgan Stanley Asia, guilty of all ten charges of insider dealing after a 38-day trial following an investigation by the Commission.

This is the tenth successful case of insider dealing that the SFC has secured since the first conviction of its kind in July 2008. The maximum penalty for insider dealing is a jail term of ten years and a fine of $10 million. According to Enforcement Director Mark Steward, the verdict underscores the Commission’s commitment to protect ordinary investors from this type of misconduct. The action also demonstrates, as Mr. Steward earlier said, that the Commission will use all available legal powers to achieve significant results in enforcement actions.

During the course of the investigation, the SFC obtained an injunction order from the court freezing $46.5 million of the banker’s liquid assets. This order marked the first time the SFC was granted an injunction order under section 213 of the Securities and Futures Ordinance to freeze the assets of a suspect during an insider dealing investigation. The Commission also successfully defeated a challenge to its power to execute search warrants and to audio record interviews.

The court concluded that the power to record an interview by audio means is reasonably incidental and necessary to the power under section 183(1)(c) of the SFO to compel a person under investigation to attend an interview and answer questions. In insisting upon an audio recording of an interview, said the court, the Commission and its investigators did not act ultra vires. The court agreed with the SFC’s submission that audio recording is an important way of ensuring the integrity of the interview process and that this does not interfere illegally with any privacy right.

The court also rejected claims that a search warrant obtained by the Commission in the ongoing insider dealing investigation was overly broad. The SFC executed the search warrant and seized a number of documents.

.