The Hong Kong High Court of First Instance has ruled that it had no jurisdiction to entertain an action by the Securities and Futures Commission alleging that a hedge fund engaged in insider dealing and false trading in securities since the Securities and Futures Ordinance created a dual regime of civil actions before the Market Misconduct Tribunal or criminal proceedings. Justice Harris noted that the legislation does not contemplate a tripartite regime with, in addition to criminal prosecution or an inquiry by the Market Misconduct Tribunal, a third procedure by which the Commission could go to the court and ask it to determine whether there had been a violation of the insider dealing provisions. The hedge fund, a New York-based asset management company, specializes in equity investments in China, Japan and Korea. Securities and Futures Commission v. Tiger Asia Management LLC, High Court of the Hong Kong Special Administrative Region, Court of First Instance, June 21, 2011.
The effect of the ruling is that a court exercising criminal jurisdiction or the Market Misconduct Tribunal has jurisdiction to determine whether a violation of Hong Kong’s insider dealing laws and market manipulation laws has occurred, with the result that the Commission cannot seek final orders under section 213 without such a prior determination. The Commission said that it would appeal the court’s ruling. The Commission noted that the hedge fund is not within the jurisdiction of Hong Kong’s criminal courts nor, in the SFC’s view, should it be entitled to receive immunity from prosecution which would be the result if proceedings were commenced before the Tribunal.
In cases in which the evidence is thought sufficiently strong to satisfy the criminal standard of proof, noted the court, an alleged violation can be prosecuted. If there is doubt about the strength of the evidence the violation can be referred to the Financial Secretary, who can instigate an inquiry by the Market Misconduct Tribunal before whom the less onerous civil standard of proof applies. The court emphasized that proceedings before the Market Misconduct Tribunal and criminal prosecution are mutually exclusive. The effect of the Financial Secretary instituting proceedings before the Market Misconduct Tribunal is to prevent further criminal proceedings.
If proceedings are instituted before the Market Misconduct Tribunal the inquiry is conducted with the assistance of an officer who presents to the Tribunal such available evidence as will enable it to make an informed decision as to whether market misconduct has taken place. The Commission is not in any sense a party to the proceedings, said the court. Rather, the Commission’s role is to provide such evidence as it is able to the Presenting Officer, who decides whether or not it should be adduced before the Tribunal.