Insider Trading: Hong Kong’s Not So Smooth Criminals
(Business Law Currents) – The Hong Kong Securities and Futures Commission (SFC) is putting the clamp on white collar criminals. Seeking to deprive convicted offenders of their freedom as well as their illicit gains, the watchdog is cracking down hard on insider dealing in the special administrative region. Recent disciplinary actions initiated by the watchdog are sending a strong message that all inside deals, even small missteps, will be prosecuted to the full extent of the law.
As previously told to Compliance Complete by former SFC head Martin Wheatley, the Commission has consciously endeavored to use criminal proceedings to deal with insider dealing in Hong Kong. The watchdog’s increasingly tough stance has put companies of all sizes on high alert.
In a recent disclosure report to its shareholders, dual-listed Brazilian miner Vale S.A. offered assurance that its global trading policies comply with insider trading laws in the United States and in Hong Kong. The company’s internal controls prohibit all types of insider dealing, including tipping and the use of insider information for individual benefit, acts that have been aggressively prosecuted by the SFC in Hong Kong as of late.
Smaller companies such as Singapore-listed Rowsley have also taken careful note of the SFC’s active presence. Earlier this year the Singaporean company was quick to assure investors that Hong Kong watchdogs had ended their investigation of one of its directors, Lee Pin Kwan and concluded that no improper conduct had taken place. Rowsley further added that Lee had been investigated “solely” because of his position in the company.
In recent weeks, the SFC was involved in multiple prosecutions regarding the improper use of insider information for individual benefit. While these cases, some of which date back several years, do not involve large sums of money, they are reflective of the SFC’s determination to impose harsh penalties for all insider dealing violations.
Late last month the watchdog concluded disciplinary proceedings against Steve Luk Ka Cheung, a former vice-president and fund manager at JF Asset Management Hong Kong. Based on findings from Hong Kong’s Market Misconduct Tribunal, the SFC handed out a ‘life sentence’, banning Luk from the asset management industry for 10 years.
Previously the MMT had ruled that Luk had received confidential information regarding a share placement of China Overseas Land and Investment Ltd, a Hong Kong listed company. The Tribunal further concluded that Luk had used the information to avoid a loss of HK$2 million before the share placement was disclosed to the public.
Also in the same month, the SFC initiated criminal proceedings against Chui Wing Nin, a former executive of CITIC Pacific Ltd, a Hong Kong-listed subsidiary of the CITIC Group, a PRC state-owned investment conglomerate. Presently the chief financial officer of Agile Property, a Hong Kong-listed company based in Guangdong, China, Chui was formerly the deputy head of Finance at CITIC Pacific and a member of the company’s senior management.
Charged with two counts of insider dealing, Chui is alleged to have sold 8,100 shares of CITIC Pacific prior to the public release of a profit warning notice in 2008 in connection with foreign exchange losses suffered by the company. The SFC alleges that Chui avoided a loss of HK$1.36 million (US$174,455) by trading on inside information regarding CITIC Pacific’s foreign exchange losses. Chui has pleaded not guilty to both counts of insider dealing; pre-trial review of the case will commence next month.
The former CITIC Pacific executive may encounter a lengthy and costly trial against a stubborn SFC for his comparatively alleged menial gains. Earlier this summer, Hong Kong’s Court of First Instance ruled against an appeal by Pablo Pak Hoe Chan, a Hong Kong citizen previously convicted of insider dealing.
In 2010, Hong Kong’s Magistrate Courts had found Chan guilty of insider dealing in the shares of a Universe International Holdings, a Hong Kong entity. At the time, Chan had been sentenced to carry out 240 hours of community service. Presumably displeased with the penalty, the SFC reviewed the trial case and moved to have Chan sentenced to 2 years imprisonment.
Fortunately for Chan, Hong Kong’s Court of First Instance upheld the community service order. However, in rendering its judgment, the judge remarked that Chan should consider himself to be exceptionally fortunate, foreshadowing that future cases may not escape the SFC’s criminal prosecution.
(This article was first published by ThomsonReuters’ Business Law Currents, a leading provider of legal analysis and news on governance, transactions and legal risk. Visit Business Law Currents online at http://currents.westlawbusiness.com. )