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Friday 11 September 2009
Investors who suffer losses may get reparation
Investors who sold shares in Citic Resources Holdings to Du Jun, not realising he was acting on insider information, could receive compensation if the Securities and Futures Commission succeeds in a landmark legal action.
Investors who sold shares in Citic Resources Holdings to Du Jun, not realising he was acting on insider information, could receive compensation if the Securities and Futures Commission succeeds in a landmark legal action.
The regulator is considering asking a court to distribute Du’s seized assets to those who suffered losses as a result of his wrongdoing. The application would be made under Section 213 of the Securities and Futures Ordinance, which has emerged as a potent weapon in the fight against financial crime.
The SFC was emboldened by a ruling in May last year in which the Court of Appeal upheld the regulator’s powers to seize assets under this provision and declared it could also be used to compensate victims of insider dealing.
Investigators had already used Section 213 in 2007 to freeze Du’s assets to the tune of HK$46 million. This was the first time the SFC had used the power, which also applies to market manipulation or fraudulent stock trading.
SFC chief executive Martin Wheatley told the South China Morning Post the provision would allow those suffering from the misconduct to get compensation. He said the means by which compensation was paid would differ from case to case and the victims could be individuals or companies.
The case of Wong Kwong-yu, the former chairman of Gome Electrical Appliances Holding, and his wife might lead to a huge compensation payment.
A court on Tuesday confirmed the freezing of HK$1.66 billion of the couple’s assets under Section 213. An SFC summons accusing Wong and his wife of fraud makes clear its intention to use the money to compensate the victim, in this case Gome.
Wheatley said it was easy to identify the victim in the Gome case but it would be more difficult in other cases. “It is far more complicated in an insider dealing case as it involves a lot more traders. But we will be able to find them.”
Du was guilty of insider trading on nine occasions in shares of Citic Resources. He was privy to information not available to investors who sold him the shares. This, the SFC argued, made them victims of his crime.
Du bought 26.7 million shares of Citic Resources from February to April 2007.
Under the Hong Kong stock exchange system, the counterparties of those trading with Du would all have been electronically recorded.
Wheatley said the data from the trading record should make it possible to trace those who sold Du the shares. The details of how to identify the investors, calculate each one’s compensation and the logistics of paying the compensation would all need to be worked out, he added.
The SFC has used its powers to ask courts to make a series of interim orders to freeze more than HK$100 million in a number of insider dealing cases. This includes the HK$46 million from Du and HK$43 million from another insider dealing case of which details have not been revealed.
The regulator last month also applied for a court order to freeze HK$29.9 million of New York-based hedge fund Tiger Asia Management and three of its senior managers for alleged insider dealing and market manipulation in short selling shares of China Construction Bank Corp in January.
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Investors who suffer losses may get reparation
Enoch Yiu
11 September 2009
Investors who sold shares in Citic Resources Holdings to Du Jun, not realising he was acting on insider information, could receive compensation if the Securities and Futures Commission succeeds in a landmark legal action.
The regulator is considering asking a court to distribute Du’s seized assets to those who suffered losses as a result of his wrongdoing. The application would be made under Section 213 of the Securities and Futures Ordinance, which has emerged as a potent weapon in the fight against financial crime.
The SFC was emboldened by a ruling in May last year in which the Court of Appeal upheld the regulator’s powers to seize assets under this provision and declared it could also be used to compensate victims of insider dealing.
Investigators had already used Section 213 in 2007 to freeze Du’s assets to the tune of HK$46 million. This was the first time the SFC had used the power, which also applies to market manipulation or fraudulent stock trading.
SFC chief executive Martin Wheatley told the South China Morning Post the provision would allow those suffering from the misconduct to get compensation. He said the means by which compensation was paid would differ from case to case and the victims could be individuals or companies.
The case of Wong Kwong-yu, the former chairman of Gome Electrical Appliances Holding, and his wife might lead to a huge compensation payment.
A court on Tuesday confirmed the freezing of HK$1.66 billion of the couple’s assets under Section 213. An SFC summons accusing Wong and his wife of fraud makes clear its intention to use the money to compensate the victim, in this case Gome.
Wheatley said it was easy to identify the victim in the Gome case but it would be more difficult in other cases. “It is far more complicated in an insider dealing case as it involves a lot more traders. But we will be able to find them.”
Du was guilty of insider trading on nine occasions in shares of Citic Resources. He was privy to information not available to investors who sold him the shares. This, the SFC argued, made them victims of his crime.
Du bought 26.7 million shares of Citic Resources from February to April 2007.
Under the Hong Kong stock exchange system, the counterparties of those trading with Du would all have been electronically recorded.
Wheatley said the data from the trading record should make it possible to trace those who sold Du the shares. The details of how to identify the investors, calculate each one’s compensation and the logistics of paying the compensation would all need to be worked out, he added.
The SFC has used its powers to ask courts to make a series of interim orders to freeze more than HK$100 million in a number of insider dealing cases. This includes the HK$46 million from Du and HK$43 million from another insider dealing case of which details have not been revealed.
The regulator last month also applied for a court order to freeze HK$29.9 million of New York-based hedge fund Tiger Asia Management and three of its senior managers for alleged insider dealing and market manipulation in short selling shares of China Construction Bank Corp in January.
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