SFC may appeal in Cheng case
THE prospect of the Securities and Futures Commission (SFC) renewing action to make William Cheng Kai-man pay investors up to $50 million in compensation appeared to strengthen yesterday.
Despite having its initial decision overturned by the Court of Appeal, the territory's chief regulator is likely to be encouraged to launch its own appeal after reviewing the written ruling.
Late yesterday, the regulator's counsel was considering whether it had the option to take the case to the Privy Council, or to reconvene an inquiry by the takeovers panel into Mr Cheng's original conduct.
It is four months since the court quashed the decision of the regulator's panel on Takeovers and Mergers against Mr Cheng's dealings in shares of Shun Ho Resources.
The court's written judgment was released yesterday.
The court ruled that the panel had abused its discretion by allowing one of its members, Stephen Clark, to appear to both accuse Mr Cheng and then sit on the panel judging him.
It also described the panel's decision that it could ''take the risk'' of a challenge as ''most unfortunate''.
The court was asked to undertake a review of the way in which the panel, an administrative tribunal with quasi-judicial powers, exercised its discretion in reaching its decision.
Michael Thomas, QC, counsel for Mr Cheng, told the court that there was no allegation that Mr Clark, ''a prominent and respected figure in the financial community'', was biased.
Rather, the court considered whether there could be a ''likelihood of bias'' as a result of Mr Clark's membership of the panel.
Justice Penlington ruled: ''It is perfectly proper for a member of the panel to bring to the attention of the SFC any matter which he considers calls for investigation, but if he goes further than that and appears to be accusing somebody of being in breach of the code, he should not be a member of the panel if, subsequent to that communication, an inquiry is held.'' A submission that Mr Clark, a partner of merchant bank Anglo-Chinese Corporate Finance, could appear to have a pecuniary interest in the panel's order to Mr Cheng to sell his stake ''does add weight to the objection on the ground of risk of bias'', the judge said.
Sources close to the SFC yesterday said the decision strengthened its belief that it could successfully appeal and reinstate the original penalty.
This could cost Mr Cheng about $50 million, because the regulator's takeover penalty told him to compensate all holders of Shun Ho shares and warrants for his failure to make a general offer.
The compensation sought amounts to 65 cents per share and 31 cents per warrant to shareholders in the group on November 30, 1988.
Alternatively, the panel could consider a ''cold shoulder'' order against him.
According to the panel's findings, which were published at the end of January, Mr Cheng failed to make a general offer to Shun Ho shareholders in 1988 after he raised his interest in the company above the 35 per cent threshold.
