Tuesday, August 23, 2011

Hong Kong Court Upholds Insider Trading Conviction

Noting that insider dealing is a serious crime, the Hong Kong Court of First Instance upheld the insider trading conviction of a person who used inside information about takeover negotiations to buy target company shares acting as a representative of the controlling shareholder and later sold the shares at a 40 percent higher price once the negotiations were announced. Securities and Futures Commission Director of Enforcement Mark Steward said that the SFC will continue to prosecute insider dealing as a criminal offence wherever possible since insider dealing is a serious crime that causes direct damage to the investing public and undermines confidence in the markets.

In this case, the actor’s offense involved obviously price sensitive information at the heart of a proposed major transaction and a serious breach of trust which allowed him to take an unfair advantage over the investing public, said the Director, who pledged that the Commission will continue the fight against market misconduct to ensure that ordinary investors can be confident in dealing in Hong Kong’s markets. The case is a further demonstration of the active commitment of the Commission to fight insider dealing with both criminal and civil remedies.

The SFC found that as a representative of the controlling shareholder the actor took part in the negotiation of a proposed acquisition of shares from the controlling shareholder. The actor purchased a total of 3,880,000 target company shares while in possession of confidential, price-sensitive information about the takeover offer; The company announced that its controlling shareholder was negotiating with an independent third party regarding the disposal of its entire holding of shares and trading in company shares was suspended. Trading resumed the following day and the share price soared by about 40 percent and the actor promptly disposed of all his shares, making a profit of approximately $120,000 from the trades.