Ex-Morgan Stanley director convicted over HK$87m deals
Enoch Yiu 11 September 2009
Hong Kong’s financial watchdog yesterday scored its biggest success yet in its fight against insider trading when a court convicted former Morgan Stanley Asia managing director Du Jun of nine counts involving HK$87 million.
The sum involved was bigger than in any previous insider trading case the Securities and Futures Commission has brought and the trial the most heavily contested yet.
At the end of it, District Court Judge Andrew Chan Hing-wai found Du guilty of insider trading and of advising his wife, Li Xin, to deal in shares of Citic Resources Holdings from February to April 2007.
Du, 40, a Beijinger, who had pleaded not guilty to the charges, reacted calmly to the verdict but his wife burst into tears. Du was taken back to his cell to await sentencing for the offences today. He is the tenth person convicted of insider dealing in the city since it became a criminal offence in 2003. He faces a maximum sentence of seven years and a fine of HK$10 million.
“The SFC will take on these cases again and again and again to ensure Hong Kong is protected from these kinds of market misconduct,” Mark Steward, the regulator’s executive director of enforcement, said. The verdict “underscores our dedication and commitment to protecting ordinary investors”, he said.
Du used his own savings and borrowed HK$50 million from Morgan Stanley to buy shares in Citic Resources, an arm of mainland conglomerate Citic Group, nine times between February and April 2007, the court heard. At the time, he was advising Citic Resources on a bond offering to finance oil asset acquisitions in Kazakhstan. He sold half the shares for a profit of HK$33.4 million after the deals were announced.
Prosecutor Charlotte Draycott enlisted the manufacturer of the BlackBerry device Du used to help prove he had opened and read e-mails containing confidential information about a bond offering and the oil acquisitions.
A person commits insider dealing if they use confidential information not yet known to the public to trade in a listed company’s shares, or to ask others to do so, to earn a profit or avoid losses.
Du’s actions were discovered by his employer, Morgan Stanley, and he was sacked in June 2007. He left the city to live in Beijing, but was arrested at Hong Kong’s airport last year when he returned to collect personal belongings.
Alexander King, senior counsel for Du, said he had received approval from the compliance department of Morgan Stanley before he bought the Citic Resources shares. But the judge noted the approval was only granted because a compliance officer misheard Du and thought he wanted to trade Citic Pacific shares rather than Citic Resources stock.
The judge also rejected the defence’s argument that news of the acquisitions was not inside information because there were already many rumours about them in the market. That Du invested such a large sum of money in a single stock - one he had never bought before - showed he knew the information he had was inside information, the judge said.
“Investors like Temasek or Lee Shau Kee would not put all their eggs in one basket,” Chan said.
In the course of the investigation, the SFC obtained an injunction from the High Court freezing HK$46.5 million of Du’s liquid assets. It was the first time the court had given such an order. The purpose was to make sure that if Du was convicted, he would have money to pay any fine and compensate any victims of his crimes.
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Insider trading net snares biggest fish yet
Ex-Morgan Stanley director convicted over HK$87m deals
Enoch Yiu
11 September 2009
Hong Kong’s financial watchdog yesterday scored its biggest success yet in its fight against insider trading when a court convicted former Morgan Stanley Asia managing director Du Jun of nine counts involving HK$87 million.
The sum involved was bigger than in any previous insider trading case the Securities and Futures Commission has brought and the trial the most heavily contested yet.
At the end of it, District Court Judge Andrew Chan Hing-wai found Du guilty of insider trading and of advising his wife, Li Xin, to deal in shares of Citic Resources Holdings from February to April 2007.
Du, 40, a Beijinger, who had pleaded not guilty to the charges, reacted calmly to the verdict but his wife burst into tears. Du was taken back to his cell to await sentencing for the offences today. He is the tenth person convicted of insider dealing in the city since it became a criminal offence in 2003. He faces a maximum sentence of seven years and a fine of HK$10 million.
“The SFC will take on these cases again and again and again to ensure Hong Kong is protected from these kinds of market misconduct,” Mark Steward, the regulator’s executive director of enforcement, said. The verdict “underscores our dedication and commitment to protecting ordinary investors”, he said.
Du used his own savings and borrowed HK$50 million from Morgan Stanley to buy shares in Citic Resources, an arm of mainland conglomerate Citic Group, nine times between February and April 2007, the court heard. At the time, he was advising Citic Resources on a bond offering to finance oil asset acquisitions in Kazakhstan. He sold half the shares for a profit of HK$33.4 million after the deals were announced.
Prosecutor Charlotte Draycott enlisted the manufacturer of the BlackBerry device Du used to help prove he had opened and read e-mails containing confidential information about a bond offering and the oil acquisitions.
A person commits insider dealing if they use confidential information not yet known to the public to trade in a listed company’s shares, or to ask others to do so, to earn a profit or avoid losses.
Du’s actions were discovered by his employer, Morgan Stanley, and he was sacked in June 2007. He left the city to live in Beijing, but was arrested at Hong Kong’s airport last year when he returned to collect personal belongings.
Alexander King, senior counsel for Du, said he had received approval from the compliance department of Morgan Stanley before he bought the Citic Resources shares. But the judge noted the approval was only granted because a compliance officer misheard Du and thought he wanted to trade Citic Pacific shares rather than Citic Resources stock.
The judge also rejected the defence’s argument that news of the acquisitions was not inside information because there were already many rumours about them in the market. That Du invested such a large sum of money in a single stock - one he had never bought before - showed he knew the information he had was inside information, the judge said.
“Investors like Temasek or Lee Shau Kee would not put all their eggs in one basket,” Chan said.
In the course of the investigation, the SFC obtained an injunction from the High Court freezing HK$46.5 million of Du’s liquid assets. It was the first time the court had given such an order. The purpose was to make sure that if Du was convicted, he would have money to pay any fine and compensate any victims of his crimes.
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