Precedent set by jail terms for creating false demand in trading
In a landmark case, two people were given jail terms yesterday for making a false market in share trading.
The sentences were the most severe handed down for market misconduct in Hong Kong. The most common penalties are fines, suspension or revocation of brokers' licences, or public reprimands.
Courts have sentenced market manipulators to imprisonment before but in those cases the sentences were suspended.
Mr P.C. White at Western Magistracy yesterday convicted Choy Wai-zak and Cyril Yuen Sze-ning of trading among themselves intentionally to create the misleading appearance of active trading in the shares of SAR-listed The Hong Kong Parkview Group in November 1999.
At the time of the investigation, both investors were employed by foreign exchange trading company Emperor International Exchange. Choy resigned from the company this year.
Choy was also convicted of trading shares of Parkview on November 15, 1999, in accounts with two stock brokers, which involved no change in the beneficial ownership of the shares. Choy was sentenced to imprisonment for eight months and Yuen to four months. They were ordered to pay total Securities and Futures Commission's investigation costs of HK$39,128.
Both applied for bail pending appeal on the sentences. Choy was refused bail and Yuen was granted bail of HK$30,000.
The maximum penalty for market manipulation in Hong Kong is two years' imprisonment and a fine of HK$50,000.
The magistrate said these were serious offences, which the defendants had carried out intentionally in the hope of gaining substantial profits without regard to the impact on the financial position of the investing public. He refused applications to suspend the sentences, saying this would not properly reflect the seriousness of the crime.
According to the SFC investigation, Choy bought and sold Parkview shares through accounts with two brokers on November 15, 1999.
On the same day, Yuen, accompanied by Choy, opened an account with one of the stockbrokers used by Choy.
Choy and Yuen traded Parkview shares with each other between November 19 and 23, 1999, and their trading accounted for a substantial portion of the total turnover in the company.
The transactions were conducted within five minutes of the market close, at prices higher than the last transaction price and the previous closing price, resulting in artificially inflating the price of the shares. These trading activities had misled the public to believe there was active trading in the shares and they might have been tempted to follow.