Jail unlikely for insider deals

PUBLISHED : Wednesday, 27 September, 2000, 12:00am
UPDATED : Wednesday, 27 September, 2000, 12:00am


Insider dealing convictions will be rare under a proposal to make illicit trading a criminal offence.

Mr Justice Michael Hartmann, chairman of the tribunal which investigates insider dealing, said regulators and legal chiefs were more likely to opt for the civil route, even though the revamped tribunal was to be stripped of its power to slap hefty fines on offenders.

'In my view the great majority of cases will still come before the market misconduct tribunal [the revamped insider dealing tribunal],' the judge said.

'Those that go before a criminal court, in my view, will be very few.'

However, under the proposed securities law, regulators and legal chiefs will be able to choose whether they wish to pursue alleged insider dealers via a civil or criminal route, Mr Justice Hartmann told a seminar on insider dealing.

Only really bad cases involving a high degree of moral culpability should go to trial, he said, and warned that regulators and the Department of Justice would have to exercise caution in making their choice.

The 'cheap option' of pursuing a case simply because the accused has confessed and insider dealing is easily provable must be avoided.

The criminal route will also incur a penalty of imprisonment, he said.

Under the civil route, the proposed Securities and Futures ordinance intends to scrap the maximum penalty imposed by the insider dealing tribunal - up to three times the amount of profit gained, or loss avoided.

This has been regarded as the tribunal's most powerful weapon, and the highest penalty imposed so far has been HK$47.4 million. Mr Justice Hartmann said the penalty clause was widely considered the 'real teeth' of the tribunal.

However, developing human rights jurisprudence 'suggests we cannot impose what amounts to a fine in a civil context unless it is only to a very small community', he said. The SAR's Bill of Rights is intended to secure human rights protection. That being the case, it is impossible to ignore developments in other jurisdictions - in this instance, Europe in particular. It suggests that if a fine is to be imposed, it may only be imposed upon the public at large in a criminal context.

'The concern is that at some future stage there may be a challenge to the ability of the insider dealing tribunal or market misconduct tribunal to impose a fine,' the judge said. The entire proceedings could then be rendered null and void. In place of the penalty, insider dealers in Hong Kong will be punished with the 'cold shoulder' and 'cease and desist' orders under the proposed law.

Licensed dealers will be forced to shun people found culpable of insider dealing for a specified period of time, while insider dealers will be warned not to repeat their illicit dealing or they will face immediate sanction.

Hong Kong abandoned criminal sanctions against insider dealers in 1974 when it was deemed unworkable.

The desire to make insider dealing either a civil wrong or criminal offence was 'presumably a desire to harmonise our market with markets internationally', the judge said.

In the United States, Britain and Australia insider dealing is a criminal offence.

Ironically, implicated parties in Hong Kong face criminal sanctions if they fail to co-operate with the Securities and Futures Commission during the insider dealing investigation process.

This could involve destroying, falsifying or concealing relevant documents while a probe is under way.