Tuesday, October 19, 2010

Hong Kong Appeals Court Upholds Insider Dealing Convictions

In the first indictable prosecution since insider dealing was made a criminal offense under the Hong Kong Securities and Futures Ordinance, a court of appeals panel upheld the insider dealing convictions of tippees who traded on price sensitive inside information about a company’s going private received from an investment banker who was working on the privatization proposal. The investment banker did not pursue an appeal of his conviction for insider dealing. Hong Kong Special Administrative Region v. Ma Hon Kit Sammy, et al., High Court of Appeal, Oct. 12, 2010, CACCI48/2009.

The court found that information on the proposed privatization of the company and the proposed suspension of trading in its shares was price sensitive information not known to the public at the material time which if known to the public would likely have affected the price of company shares and hence constituted `` relevant information’’ within the meaning of the Ordinance. Further, given that the information was not known to the public but only known to a limited number of persons with limited access to the information, tippees had reasonable cause to believe that the investment banker possesses the inside information it as a result of his position and his connection to the company.

The case is a further demonstration of the active commitment of the Securities and Futures Commission to fight insider dealing with both criminal and civil remedies. Earlier Martin Wheatley, CEO of the Securities and Futures Commission, said that the action is a significant milestone signalling the community’s strongest condemnation of insider dealing. Insider dealing is a serious crime that will be punished severely, he emphasized, even for first time offenders. SFC Enforcement Director Mark Steward noted that the Commission has secured nine criminal convictions with immediate jail terms in five cases inside the span of 12 months. These are the results of the first criminal proceedings for insider dealing in Hong Kong’s history, he said, and include the first indictable prosecutions under the Securities and Futures Ordinance.

In earlier remarks, Director of Enforcement Mark Steward said that enforcement must be grounded in the SFC’s statutory objectives of fair and honest markets, reduction of misconduct, and investor protection. But beyond these statutory goals, he emphasized that there must also be a recognition of the devastating impact of crime and misconduct on real people, families, businesses and investors. There must also be a desire to diagnose the problems and rectify the harm caused by misconduct effectively and without bureaucratic delay. And underlying all of this is the need for what the Director called ``regulatory pragmatics.’’

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