Tougher securities law no more than public relations
TODAY IS APRIL Fool's Day. It is also the day that our new Securities and Futures Ordinance comes into effect with its much ballyhooed provisions for sending transgressors to jail.
Who knows? The two may go well together. The test will be in how many criminal prosecutions we actually get from this law.
It is my opinion that it could soon prove to be little more than just another piece of public relations aimed at the international investment community. You have already heard the line - Look at us. We are tough now. We have criminal sanctions against market misdeeds just as you do at home.
But there is a loophole here. It is called the Market Misconduct Tribunal (MMT). This is a new creation modelled on the existing insider dealing tribunals and, like them, requires only civil standards of proof.
The corollary of this is that it can impose only civil standards of sanction - loud noises of disapproval, fines, disgorgement orders, disqualifications, disciplinary referral orders to professional bodies but no jail.
The ordinance says that when the Securities and Futures Commission has conducted an investigation and presented the financial secretary with evidence of misdeeds, he can decide whether to refer the case to the secretary for justice for criminal prosecution or send it to the MMT.
Now I am not a lawyer and I shall not try to distinguish the fine points of the difference between the standards of proof required for civil and criminal cases. Judging, however, by what I have read of the proceedings of insider dealing tribunals, there is a large element of guilty until proven innocent in them, which is not something a judge in a criminal court of law can accept.
Let me point out two other salient features of this new ordinance. The first is that it expressly rules out double jeopardy. In other words, if you are cleared by a criminal court of a charge of misconduct, you cannot be subject to civil proceedings for it and vice versa.
The other is that while insider dealing tribunals restricted themselves to insider dealing, this new MMT will cover a much broader range. It will also deal with false trading, price rigging, disclosure of information about prohibited transactions, disclosure of false or misleading information inducing transactions and stock market manipulation.
So here is the first of two questions I have about this. Rather than tightening up sanctions against misdeeds, will not the creation of this MMT rather permit an easing of these sanctions by allowing proceedings through the MMT for this much wider range of misconduct?
Remember, no jail if your case goes through an MMT and no threat of further criminal proceedings if it does so.
Secondly, how many cases of misconduct do we really expect to be referred to criminal courts rather than the MMT? It is mighty difficult to meet the standards of proof that a criminal court requires in such commercial cases. They can be extremely complicated and few judges or barristers understand enough of finance or investment to muddle their way through them.
If reasonable doubt is enough to get you off when the burden of proof is on the prosecution rather than on you and the few people in the courtroom who really have any familiarity with the technicalities of what is involved, then your chances go up enormously.
And I do not think I need to make this a matter of conjecture when I have the general record of such cases in our criminal courts to bear me out. I wonder, I really do, whether the creation of the MMT does not represent an implicit recognition of this. What we may have here is a new law that purports to impose more severe penalties but is actually written to accept the opposite in order to win more convictions.
Let the proof of the pudding be in the eating. After years of going through round after round of talks, this new ordinance is now law. We will now finally be able to see whether all the talk of criminal penalties translates into the fact of criminal prosecutions.
My guess is that it will not. What we will actually get is referrals to the MMT in all but the most egregious cases of financial crime and I will hazard another guess that those could have gone to the criminal courts anyway under existing legislation.
If this proves to be the case, then what you may now call my cynicism will prove to be fact. This law will be nothing more than another piece of public relations, an April Fool's joke told on April Fool's Day.