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Thursday, 11 March 2010
Insider trade watchdog a toothless old hound
Insider trading may now be a serious criminal offence, but up until recently, many seemed to have regarded it as being no more serious than a parking ticket or littering fine.
The relevant tribunal was only able to impose penalties provided under the civil code
Enoch Yiu 11 February 2010
Insider trading may now be a serious criminal offence, but up until recently, many seemed to have regarded it as being no more serious than a parking ticket or littering fine.
Seventy-one per cent of insider traders convicted by the largely toothless Insider Dealing Tribunal over the past 19 years refused to pay a combined HK$539 million in fines.
The law was changed in 2003 to make insider trading a criminal offence triable in a proper court, but the tribunal, which only had civil powers, continued operating until the end of last year.
In the past 19 years, the tribunal ordered 65 offenders to pay fines totalling HK$757 million. But total payments received as of the end of last year were only HK$218 million.
While some of those who failed to pay may have died or gone bankrupt, most have simply thumbed their noses at a body that had little enforcement power.
In a further blow to the tribunal’s already poor track record, the Court of Appeal yesterday set aside an HK$8.78 million fine imposed by the tribunal in 2007 on 10 convicted insiders who illegally traded shares of Vanda Systems & Communications Holdings.
Justice Anthony Rogers ruled that the financial penalties imposed by the tribunal had, in an earlier Court of Final Appeal case, already been judged in breach of Hong Kong’s Bill of Rights.
This was because the tribunal only had civil jurisdiction, which required a lesser standard of evidence than a criminal case.
This meant that the only major penalty the tribunal could apply was to ban someone from being a director for up to five years. The tribunal’s troubles reflect the changing perception of insider trading and other financial crimes in Hong Kong. While it is now firmly a “no go” area for those wish to remain out of jail, seven years ago insider dealing was akin to sharing racing tips.
Even before the Court of Final Appeal ruling, many insiders simply did not take the tribunal seriously. It had faced many judicial reviews and appeals, which lengthened the already long process of hearings.
The snail’s pace of tribunal business meant it was only able to complete its last job two months ago, even though no new cases were submitted to it after 2003 when insider trading became a criminal offence.
The facts of the Vanda case occurred in 2000, the hearing started only in 2003 and the 11 insider traders were convicted in 2007.
Under the tribunal system, the Securities and Futures Commission investigated alleged insider dealing cases and referred them to the financial secretary, who appointed a three-member tribunal of one judge and two lay members to hear the case.
Being a civil court, it accepted a lower level of evidence than a criminal court; that is “on the balance of probabilities” rather than “beyond a reasonable doubt”.
The lengthy process stemmed partly from the complicated system through which the case had to pass from the SFC to the financial secretary - whose decisions would then create a tribunal or not.
From April 2003, insider traders faced criminal prosecution, a maximum 10-year jail term and a fine of HK$10 million. The SFC may also refer alleged insider dealers to a market misconduct tribunal.
To be fair, the Insider Dealing Tribunal is not without achievements. At the very least, it made people aware of the malpractice.
Before 1991, it was a common practice for people to pass news of listed companies to spouses, friends, neighbours, colleagues during lunches, dinners or any social gathering.
It was considered harmless and allowed friends to earn a bit of pocket money from the market by trading on non-publicly announced company information.
But Hong Kong’s development as a major international financial centre meant issues of transparency and propriety became paramount.
The tribunal heard a total of 28 cases and convicted 65 people. Six people were banned from being directors for periods of between three months and five years.
Despite criticism, the government believed the system deserved credit. “Over the past two decades, the Insider Dealing Tribunal has functioned as an important mechanism to combat insider dealing ...,” a government spokeswoman said.
“We are confident that our current legislation provides effective safeguards against insider dealing and other types of market misconduct, which is instrumental to the maintenance of Hong Kong as a world-class financial centre.”
Key dates in Vanda Systems saga
April 1995 Vanda Systems & Communications Holdings lists on stock exchange. Initial public offering priced at HK$1.12
Feb 11, 2000 Vanda closes at HK$3.175, on volume of 44.3 million shares
Feb 12, 2000 BNP Paribas Peregrine arranges meeting between senior management of Vanda and Hutchison Whampoa to discuss deal; shares not traded as it is a Saturday
Feb 14, 2000 Another meeting between Vanda and Hutchison about setting up the joint venture. From Feb 14 to 17, three senior executives of two companies give inside information to Silvia Chan, Becky Chan, Debbie Ng, Dennis Li, Christie Wo, Chris Wong, Charles Chong and Becky Chong, who buy shares worth total HK$21.2 million
Feb 15, 2000 Vanda shares close at HK$3.725, with turnover of 27.53 million
Feb 17, 2000 Vanda announces it is discussing funding with a third party; share price rises to HK$5.70 with turnover of 37.64 million
Feb 18, 2000 Vanda shares suspended
Feb 22, 2000 Vanda announces agreement to reach a deal with Hutchison; share price rises to HK$8.60 with turnover of 81.55 million
Nov 2003 Financial secretary orders creation of Insider Dealing Tribunal to hear case; 11 people named as alleged insiders
Sep 2005 Several implicated parties launch judicial review against tribunal hearing; hearing suspended
Apr 2006 Hearing resumes after judicial review bid fails
Mar 2007 All 11 alleged insider traders are convicted and fined a combined HK$27 million
Dec 2009 Four of the insiders who were convicted in the Vanda case are also convicted by another Insider Dealing Tribunal in the Harbour Ring International case
Jan 2010 Ten out of 11 convicted launch appeals in case before Justice Anthony Rogers and two judges
Feb 2010 Mr. Justice Rogers rejects the appeal but set aside the fines
How the information flowed among the insider traders:
1. Vanda co-founder Lam Hon-nam tips off sister-in-law Silvia Chan, who trades HK$2.95 million worth of Vanda shares
2. Vanda general manager Ernest Choy tips off wife Becky Chan
3. Hutchison e-commerce chief executive Sammy Tse tips off friends Debbie Ng, Dennis Li, Charles Chong and Christie Wo
4. Debbie Ng tips off boyfriend Chris Wong
5. Charles Chong tips off sister Becky Chong Bun-bun
2 comments:
Insider trade watchdog a toothless old hound
The relevant tribunal was only able to impose penalties provided under the civil code
Enoch Yiu
11 February 2010
Insider trading may now be a serious criminal offence, but up until recently, many seemed to have regarded it as being no more serious than a parking ticket or littering fine.
Seventy-one per cent of insider traders convicted by the largely toothless Insider Dealing Tribunal over the past 19 years refused to pay a combined HK$539 million in fines.
The law was changed in 2003 to make insider trading a criminal offence triable in a proper court, but the tribunal, which only had civil powers, continued operating until the end of last year.
In the past 19 years, the tribunal ordered 65 offenders to pay fines totalling HK$757 million. But total payments received as of the end of last year were only HK$218 million.
While some of those who failed to pay may have died or gone bankrupt, most have simply thumbed their noses at a body that had little enforcement power.
In a further blow to the tribunal’s already poor track record, the Court of Appeal yesterday set aside an HK$8.78 million fine imposed by the tribunal in 2007 on 10 convicted insiders who illegally traded shares of Vanda Systems & Communications Holdings.
Justice Anthony Rogers ruled that the financial penalties imposed by the tribunal had, in an earlier Court of Final Appeal case, already been judged in breach of Hong Kong’s Bill of Rights.
This was because the tribunal only had civil jurisdiction, which required a lesser standard of evidence than a criminal case.
This meant that the only major penalty the tribunal could apply was to ban someone from being a director for up to five years. The tribunal’s troubles reflect the changing perception of insider trading and other financial crimes in Hong Kong. While it is now firmly a “no go” area for those wish to remain out of jail, seven years ago insider dealing was akin to sharing racing tips.
Even before the Court of Final Appeal ruling, many insiders simply did not take the tribunal seriously. It had faced many judicial reviews and appeals, which lengthened the already long process of hearings.
The snail’s pace of tribunal business meant it was only able to complete its last job two months ago, even though no new cases were submitted to it after 2003 when insider trading became a criminal offence.
The facts of the Vanda case occurred in 2000, the hearing started only in 2003 and the 11 insider traders were convicted in 2007.
Under the tribunal system, the Securities and Futures Commission investigated alleged insider dealing cases and referred them to the financial secretary, who appointed a three-member tribunal of one judge and two lay members to hear the case.
Being a civil court, it accepted a lower level of evidence than a criminal court; that is “on the balance of probabilities” rather than “beyond a reasonable doubt”.
The lengthy process stemmed partly from the complicated system through which the case had to pass from the SFC to the financial secretary - whose decisions would then create a tribunal or not.
From April 2003, insider traders faced criminal prosecution, a maximum 10-year jail term and a fine of HK$10 million. The SFC may also refer alleged insider dealers to a market misconduct tribunal.
To be fair, the Insider Dealing Tribunal is not without achievements. At the very least, it made people aware of the malpractice.
Before 1991, it was a common practice for people to pass news of listed companies to spouses, friends, neighbours, colleagues during lunches, dinners or any social gathering.
It was considered harmless and allowed friends to earn a bit of pocket money from the market by trading on non-publicly announced company information.
But Hong Kong’s development as a major international financial centre meant issues of transparency and propriety became paramount.
The tribunal heard a total of 28 cases and convicted 65 people. Six people were banned from being directors for periods of between three months and five years.
Despite criticism, the government believed the system deserved credit. “Over the past two decades, the Insider Dealing Tribunal has functioned as an important mechanism to combat insider dealing ...,” a government spokeswoman said.
“We are confident that our current legislation provides effective safeguards against insider dealing and other types of market misconduct, which is instrumental to the maintenance of Hong Kong as a world-class financial centre.”
Key dates in Vanda Systems saga
April 1995 Vanda Systems & Communications Holdings lists on stock exchange. Initial public offering priced at HK$1.12
Feb 11, 2000 Vanda closes at HK$3.175, on volume of 44.3 million shares
Feb 12, 2000 BNP Paribas Peregrine arranges meeting between senior management of Vanda and Hutchison Whampoa to discuss deal; shares not traded as it is a Saturday
Feb 14, 2000 Another meeting between Vanda and Hutchison about setting up the joint venture. From Feb 14 to 17, three senior executives of two companies give inside information to Silvia Chan, Becky Chan, Debbie Ng, Dennis Li, Christie Wo, Chris Wong, Charles Chong and Becky Chong, who buy shares worth total HK$21.2 million
Feb 15, 2000 Vanda shares close at HK$3.725, with turnover of 27.53 million
Feb 17, 2000 Vanda announces it is discussing funding with a third party; share price rises to HK$5.70 with turnover of 37.64 million
Feb 18, 2000 Vanda shares suspended
Feb 22, 2000 Vanda announces agreement to reach a deal with Hutchison; share price rises to HK$8.60 with turnover of 81.55 million
Nov 2003 Financial secretary orders creation of Insider Dealing Tribunal to hear case; 11 people named as alleged insiders
Sep 2005 Several implicated parties launch judicial review against tribunal hearing; hearing suspended
Apr 2006 Hearing resumes after judicial review bid fails
Mar 2007 All 11 alleged insider traders are convicted and fined a combined HK$27 million
Dec 2009 Four of the insiders who were convicted in the Vanda case are also convicted by another Insider Dealing Tribunal in the Harbour Ring International case
Jan 2010 Ten out of 11 convicted launch appeals in case before Justice Anthony Rogers and two judges
Feb 2010 Mr. Justice Rogers rejects the appeal but set aside the fines
How the information flowed among the insider traders:
1. Vanda co-founder Lam Hon-nam tips off sister-in-law Silvia Chan, who trades HK$2.95 million worth of Vanda shares
2. Vanda general manager Ernest Choy tips off wife Becky Chan
3. Hutchison e-commerce chief executive Sammy Tse tips off friends Debbie Ng, Dennis Li, Charles Chong and Christie Wo
4. Debbie Ng tips off boyfriend Chris Wong
5. Charles Chong tips off sister Becky Chong Bun-bun
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