Two cases have highlighted the importance of providing training for your staff (irrespective of their seniority) on insider dealing. A former independent non-executive director (the INED) of Hong Kong Aircraft Engineering Company Limited (HAECO) faces criminal prosecution for insider dealing. It was alleged that the INED purchased shares after being told about a proposed sale by a substantial shareholder of HAECO of its shares in the listed company to another company. The deal triggered a general offer for the shares in HAECO at a price 25% above the market price for the shares. The INED denied insider dealing, but apparently admitted that he had not followed company policy by buying the shares inadvertently, without obtaining approval from the Chairman of the Board.
Previously, the Market Misconduct Tribunal had found that a trainee solicitor of a law firm in Hong Kong had engaged in insider dealing. It was determined, that whilst working on a proposed general offer of a target listed company shares, the trainee passed this piece of price sensitive information to her then boyfriend, who bought the shares in the target company before the announcement of the deal. Both were found to have engaged in insider dealing.
In the case of the trainee solicitor and the INED, the profits allegedly made were not substantial, only about HK$80,000. Yet, the consequences were very serious. The INED's case will be tried in January 2012 and further details will be available then. However, both cases have highlighted the importance for companies and firms who might have to deal with price sensitive information to provide training to their staff on insider dealing and market misconduct.
Although the prosecution and MMT findings were not against the defendants' employers, the damage to reputation and time and costs the employers might incur in dealing with the SFC investigation should not be underestimated.
If you would like to organise internal training on issues such as insider dealing and market misconduct, please feel free to contact our partner, Joseph Kwan.