In our April 2012 and May 2013 newsletters, we reported on the case of Securities and Futures Commission v Tiger Asia Management LLC & Others.
To recap, on 30 April 2013, the Court of Final Appeal, made a landmark ruling, upholding the SFC’s right to seek compensation, under section 213 of the Securities and Futures Ordinance (“SFO”), against Tiger Asia Management LLC (“Tiger Asia”) and three of its officers (collectively referred to as “the Tiger Asia Parties”), without first having to prove them guilty of insider dealing or other malpractices. The SFC’s proceedings against the Tiger Asia Parties, under section 213 of the SFO, are continuing.
The SFC has now commenced proceedings in the Market Misconduct Tribunal (“MMT”) against the Tiger Asia Parties in relation to the dealings in question i.e. dealings in the securities of Bank of China (“BOC”) and China Construction Bank Corporation (“CCB”) during 2008 and 2009. The SFC alleges that the Tiger Asia Parties have engaged in market misconduct, contrary to sections 270 (insider dealing) and 274(False Trading) of Part XIII of the Securities and Futures Ordinance (Cap 571). The MMT has published on its website a statement setting out the grounds on which it has initiated the proceedings.
In respect of CCB shares, the SFC alleges that a placing agent in Hong Kong invited Tiger Asia to participate in a proposed placement of CCB shares in Hong Kong by the Bank of America Corporation, before the market opened, telling Tiger Asia about the size and discount range of the proposed placement. The SFC says that this was confidential and price sensitive and that the Tiger Asia Parties knew this. The SFC says that Tiger Asia then short sold a total of 93 million CCB shares before the news of the CCB placement was made public, with Tiger Asia covering its short sales out of the placement shares it had bought at a discount to the prevailing market price, making a substantial notional profit of around HK$32 million. The SFC also alleges manipulation of the CCB share price by Tiger Asia during the closing auction session.
In respect of the BOC shares, the SFC alleges that Tiger Asia was given advance notice and invited to participate in two placements of BOC shares by USB AG and Royal Bank of Scotland and that Tiger Asia was provided with details of both placements after being told and agreeing that the information was confidential and price sensitive. The SFC says that Tiger Asia also agreed not to deal in BOC shares after receiving the information. The SFC says that Tiger Asia short sold 104 million BOC shares before the placement by UBS AG, making a notional profit of around HK$9 million and short sold 256 million BOC shares before the placement by Royal Bank of Scotland, making a notional loss of around HK$10million.
In the event of the MMT finding that there has been market misconduct, it can make a range of orders, such as prohibiting a person from acquiring, disposing or otherwise dealing in securities, futures contracts or leveraged foreign exchange contracts in Hong Kong, without the Court’s leave, for up to 5 years.
This is the first time that that the SFC has commenced proceedings in the MMT directly. The SFC was given direct access to the MMT by virtue of section 252A of the SFO, which was introduced in 2012. Prior to that, only the Financial Secretary could initiate proceedings in the MMT.
No criminal proceedings are being pursued by the SFC against the Tiger Asia Parties because Tiger Asia and two of the officers in question have already been prosecuted in relation to the same conduct in the United States in criminal proceedings. Tiger Asia had pleaded guilty to criminal offences under US law and the two officers in question had been charged with civil offences by the United States Securities and Exchange Commission. The SFC has received advice that both these proceedings would likely be classified as criminal proceedings under Hong Kong law, meaning that no criminal proceedings could be brought in Hong Kong in view of the legal principle of double jeopardy i.e. a person cannot be prosecuted twice for the same conduct
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