Corporate & Securities Law

By Jim Hamilton

A finance manager of a listed company became the first person convicted of insider trading under the Hong Kong 2003 Securities and Futures Ordinance. The finance manager engaged in insider trading in a company?s stock while employed with a wholly-owned subsidiary of the company. A magistrate imposed a six-month suspended sentence and a fine of $200,000 Hong Kong dollars.

Declaring that protecting investors from dishonest insiders is a cornerstone obligation for market regulators, Securities and Futures Commission Director of Enforcement Mark Steward said that the Commission will continue to attack insider trading wherever it is detected. Four more cases arising from Commission investigations are presently before the Market Misconduct Tribunal, he noted, and in three other cases before the High Court the SFC has obtained interim orders freezing approximately $100 million in suspected insider profits.

In this case, the SFC alleged that the finance manager sold her shares in the company while aware of non-public information that one of the company?s major debtors had filed for Chapter 11 bankruptcy protection in the United States. The insider thereby avoided a loss of $63,333. The insider was aware that the debtor?s inability to pay its debt to the company would affect the company?s financial position and share price. Subsequently, the company did announce a decline in profit, partially attributed to the bad debt provision resulting from its debtor?s bankruptcy. The calculation of avoided loss was based on the difference between the actual disposal price and the two-day re-rated share price of the company immediately after the release of the financial results.

In a separate unrelated event, the Commission announced that a former managing director at a global investment bank was arrested and charged with nine counts of insider trading in connection with the shares of a listed company prior to the announcement of an acquisition deal. It was alleged that the managing director obtained the inside information about the company?s proposed acquisition while he was part of the bank?s team advising the company on the transaction.

Full post as published by Jim Hamilton's World of Securities Regulation on July 19, 2008 (boomark / email).