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Jane Moir

WHAT DO INSIDER dealing and the mythical village of Brigadoon have in common?

The latter was enchanted, rendering the entire community invisible and unchanging to the outside world. The Scottish village could be seen only one day every 100 years.

Folklore also has it that there is a second insider dealing tribunal in Wan Chai. We have heard of it, but have yet to see a case take place there.

The tribunal was supposed to ease the workload of the Admiralty tribunal, which has heard most insider dealing cases over the past few years. If the Wan Chai arm has actually handled cases, they have not been in abundance.

Also on a misty note is the urgency to have a wider pool of judges handle insider dealing cases, which prompted 1999 legislation allowing deputy judges to chair the tribunals.

'As Hong Kong's securities market continues to grow in terms of breadth and depth, the number as well as the complexity of insider dealing cases are expected to increase further,' legislators were informed at the time.

And so the pool of judges was expanded to include deputy judges. So far we have counted one deputy taking up the tribunal chair.

In fairness, the hearings by nature are slow. Slow, dry and very complex. They take time - spanning years in some instances - and tie up High Court judges needed elsewhere.

It has therefore been rare to see two tribunals working concurrently, never mind three (there are actually three 'divisions', despite having only two physical tribunals).

Since the tribunal was set up in 1991, it has dealt with only 19 cases, or roughly two a year. Yes, the process takes a long time from the first whiff of an illicit trade to the actual hearing, but you can not help thinking that there are a lot more suspicious trades out there.

Many of these cases have been challenged in the courts, which does account for long delays in cases being heard once they get to the tribunal stage. The case involving Worldsec International boss Carlton Poon is an example.

The powers of the tribunal - namely its decision to widen the inquiry to include Lippo's Stephen Riady - are going to be subject to a judicial review. The insider dealing case will no doubt be put on hold.

But bearing all this in mind, how exactly is the insider dealing tribunal's successor to cope with an expanded scope and presumably a much larger caseload?

The small pool of judges will still be there - the Judiciary will be wary of relinquishing too many of them for lengthy periods. As will the endless applications for adjournments and at least a few legal challenges. The complexity likewise will remain.

And that is just for insider dealing. The new Market Misconduct Tribunal (MMT) - which will replace the insider dealing tribunal - will have a wider compass.

Nor is Hong Kong's track record of clamping down on illicit trades - in terms of sheer numbers - likely to receive an immediate boost from criminalising insider dealing, if the experience of other jurisdictions is anything to go by.

The MMT will deal with civil cases. Gone will be the 'hit-them-in-the-pocket' penalties and instead insider dealers will be slapped with a cease and desist order or a cold shoulder.

The most brazen culprits will face criminal sanctions - up to 10 years in jail.

Potential is there for a potent deterrent. But if there are few successful prosecutions, the power will be diminished.

The Netherlands has successfully prosecuted only one case in the past 10 years.

Britain has fared slightly better, with 22 insider dealing convictions in the past 18 years.

The crux of the problem is that insider dealing is an extremely difficult crime to prove. Even in the civil context, it has been no picnic.

Direct evidence is rare. There are no smoking guns. There is no physical evidence. It is a matter of proving what was on the mind of the trader.

Evidence is usually circumstantial. Be it trading patterns, relationships between punters, or timing. Hence the lengthy process of dissecting what are essentially pieces of a puzzle.

It will be up to the Financial Secretary to decide which cases warrant criminal sanctions. After that, there is no turning back if he changes his mind - it is either civil or criminal. No getting halfway through a court case only to realise the chances of winning are slim, and then switch to the civil tribunal.

There will be serious debate over the cases suitable for the criminal courts. The danger is that prosecution will be reserved not for the most brazen insider dealing cases, but simply those easier to prove.

Factor in the costs involved, and the issue becomes even more complex. The past 11 years have shown that insider dealing tribunals do not come cheap.

The Paragon Holdings case alone - which became subject to a judicial review after a judge held the inquiry in private - is estimated to have cost taxpayers HK$40 million.

Bearing in mind the high cost of litigating in Hong Kong, the criminal route will likewise come with a steep price tag.

The selection process just got tougher.

Graphic: ins28gbz



Rule of lore at the tribunal