Thursday, 11 March 2010

Court rejects appeal of 10 insider traders

Ten people involved in one of the city’s biggest insider dealing cases yesterday lost an appeal against their conviction but will escape an HK$8.78 million fine because the now defunct tribunal set up to punish offenders had no power to levy the penalty.

2 comments:

Guanyu 道 said...

Court rejects appeal of 10 insider traders

Judge upholds tribunal’s ruling but sets aside HK$8.8m fine

Enoch Yiu
11 February 2010

Ten people involved in one of the city’s biggest insider dealing cases yesterday lost an appeal against their conviction but will escape an HK$8.78 million fine because the now defunct tribunal set up to punish offenders had no power to levy the penalty.

The case in the Court of Appeal underscores the weakness of the Insider Dealing Tribunal, which operated as a civil court hearing cases on insider trading before the introduction of criminal penalties for the offence in 2003.

Justice Anthony Rogers, in a judgment, confirmed the tribunal’s decision in 2007 that 10 people - including a then 17-year-old teenager, her wealthy boyfriend, a housewife and three senior executive of two listed companies - had committed insider dealing when trading shares of Vanda Systems & Communications a decade ago.

However, Rogers set aside the fines because the Court of Final Appeal in 2008 held in a separate case that the tribunal had no power to order such a penalty.

As such the 10 will only need to pay the combined HK$16.64 million of profit they earned by the illegal trading and investigative costs incurred by the Securities and Futures Commission. Some will also face being banned as directors of companies for several years.

The Insider Dealing Tribunal, which operated from 1991 until December last year, was criticised because of its lack of power. It could not sentence anyone to jail and the fines it imposed were largely ignored. Insider dealing was made a criminal offence in 2003, with penalties including a maximum 10 years in jail and fines of HK$10 million.

So far, six insiders have been sent to jail under the new criminal provision including former Morgan Stanley managing director Du Jun, who in September last year was imprisoned for seven years and fined HK$23.3 million. It was the biggest insider dealing in the city ever in terms of money.

The Vanda case is the biggest in terms of the numbers of offenders, with 11 people convicted.

Debbie Ng Kit-ying, who was only 17 years old and unemployed at the time, had no direct relationship with any listed company, but became the youngest insider convicted. She got the insider information from a friend she knew at a karaoke lounge.

The case dates back to February 2000 when senior executives of Vanda and a unit of Hutchison Whampoa held meetings to discuss a deal which would lead to Hutchison taking a stake in Vanda.

Vanda’s share price rose 80 per cent in one week, from HK$3.175 before the first meeting to discuss the deal, to HK$5.70 when its shares were suspended from trading. After the announcement, the shares rose a further 50 per cent to HK$8.60.

The three sources of information about the deal included Vanda’s co-founder Lam Hon-nam, Vanda general manager Ernest Choy Ming-yan and Sammy Tse Kwok-fai, the chief executive of Hutchison E-Commerce. The three did not trade themselves but told others to do so.

Lam tipped off his sister-in-law Silvia Chan Yuk, an accountant. Choy got his wife Becky Chan Lai-king, a housewife, to trade shares, while Tse passed on the information to a group of his friends who sang karaoke together, including Ng.

In the tribunal hearing, Ng said she earned a living at the time by “people giving me money and I traded in shares”. In a tribunal report in 2007, Ng was said to be working as a part-time fashion trader on the mainland.

She said she met a “rich uncle” while singing karaoke who gave her millions of dollars to trade stocks. Other boyfriends including Chris Wong, who was also convicted in this case, also gave her money to trade shares.

Ng was then able to trade millions of dollars worth of Vanda shares through her mother and Wong’s account.

“Her understanding was that she would get any profits the account made but Chris Wong Cheung-hung would pay for the losses,” the tribunal report said.

Guanyu 道 said...

Tse also tipped off other karaoke friends such as businessman Dennis Li Yat-tung and businesswoman Christie Wo, as well as his neighbour, Charles Chong Wai-lee, who passed the information to sister Becky Chong Bun-bun. All were convicted as insiders. Wo was the only one person not to appeal.

“Sammy Tse was found to have been responsible for disseminating relevant information which was passed to a web of friends and acquaintances,” Rogers said in his judgment.

“The tribunal held that he had only received about HK$80,000 but was possibly motivated by a desire to impress his acquaintances and friends,” he said.

“Importantly, the tribunal came to the conclusion that Sammy Tse, Debbie Ng and Dennis Li were not witnesses of truth and their evidence was inherently unbelievable in many respects.”

During the appeal, Ng’s lawyer Bernard Mak said the teenager’s age led her to being “used and exploited” by others.

However, during the hearing Rogers said: “A 17-year-girl received millions of dollars from two boyfriends to trade shares. Can you say that she was exploited? Despite her young age, she appears to have spent considerable time in stockbrokers’ offices.”

Ng, Tse, Charles Chong and Becky Chong were convicted as insider dealers in another insider dealing case in December last year, again involving Hutchison Whampoa. Again, it was Tse who tipped the other three.