Judge backs S.F.C. over Tiger Asia
In a landmark ruling, a Hong Kong court yesterday backed the securities watchdog's efforts to make US-based hedge fund Tiger Asia Management cough up the profit it made from alleged insider trading.
The Appeal Court confirmed the Securities and Futures Commission could independently seek civil remedies from Tiger Asia.
It decided there was no need to wait for a criminal prosecution or a Market Misconduct Tribunal ruling on whether the hedge fund has committed insider trading before it can seek claims on behalf of investors from the fund.
The SFC alleges that Tiger Asia and its three executives are guilty of insider trading and market manipulation in 2008 and 2009 ahead of share placement announcements by China Construction Bank and Bank of China, pocketing a profit of HK$38.5 million.
Tiger Asia denied the allegation in a letter to investors last year.
High Court Judge Jonathan Harris last year rejected an SFC bid to freeze HK$38.5 million worth of assets belonging to Tiger Asia and its founder Bill Hwang Sung-kook, managing director and head of trading Raymond Park and trader William Tomita.
He said there should first be a criminal prosecution or a Market Misconduct Tribunal ruling on the SFC allegation.
But Court of Appeal vice-president Judge Robert Tang yesterday overturned that verdict, saying that 'criminal prosecution may be difficult or impossible' since Tiger Asia is based outside Hong Kong.
Tiger Asia trades in the Hong Kong market but it is based in New York and has no employees or offices here.
In the ruling statement, Judge Tang said securities law does not make criminal prosecution or a tribunal ruling a pre-condition for the SFC to seek from alleged market manipulators claims on behalf of investors.
The judge said the power granted to the SFC under Section 213 of the Securities and Futures Ordinance that allows the commission to seek claims for investors against wrongdoers 'was meant to augment the commission's ability to protect the investing public and provide remedies for contraventions for the protection of investors'.
The judge said the power under Section 213 'provides valuable tools to the commission to protect the investing public' and 'provides much needed ammunition to the commission to protect investors'. Judge Tang added: 'I do not agree that it is reasonable or desirable that investor protection under Section 213 should come at the price of forgoing criminal prosecution.'
The ruling will have a far-reaching impact on other cases. A court hearing is due in June over the SFC's efforts to make suspended sport fabric maker Hontex International return the HK$1 billion it raised in its initial public offering in 2009 back to investors.
The SFC alleges the company provided misleading information in its listing prospectus.
The SFC can now apply to freeze Tiger Asia's HK$38.5 million worth of assets in Hong Kong to pay back investors who were victims of the alleged insider dealing trades.
Mark Steward, the SFC's executive director of enforcement, said: 'The SFC welcomes today's ruling, which vindicates the position we have taken in relation to Section 213 proceedings. The SFC will continue to prosecute these cases fairly and vigorously.'
The total profit, in Hong Kong dollars, which is thought to have been pocketed by Tiger Asia through alleged market manipulation