Bad legislation underpins court's support for the SFC
Jake van der Kamp
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 dealing.
SCMP, February 24
I have said it before and I shall say it again. The most insidious threat to the rule of law in Hong Kong today is the Securities and Futures Commission.
This ruling by the appeal court is indeed a landmark. It marks a reversal of the normal process of law. First we let the SFC mete out a penalty for an offence, and then we bring the unfortunate parties who are thus punished into court for a hearing to see whether they committed that offence.
Are we perched on our heads in this town? Surely this ruling must now go to the Court of Final Appeal. It cannot be allowed to stand.
The circumstances are straightforward. Tiger Asia, a respected New York fund manager, was pitched for a placement of shares in China Construction Bank. It took the view (correctly as things turned out) that it was unlikely to be welcomed by the market and shorted the stock instead.
How this gets to be called insider dealing is beyond me. I call it responsible fund management. But if the SFC wishes to say that Tiger Asia took advantage of privileged information, could it please tell me how it would not have done this if it had bought the stock and made money rather than selling it and making money?
We shall have to leave this aside. If there is one thing these market regulators do not understand it is the workings of the markets they regulate, but there is nothing we can do about this, except live with it.
The SFC faced a difficulty in this case, however. It could have taken its allegations to one of its market misconduct tribunals, where the required standards of proof are lower than in a court of law but the penalties are also less severe.
It would have been able to seize ill-gotten gains this way, but the Tiger Asia staffers it has in its sights would then also receive immunity from prosecution in a criminal court and the SFC apparently wants blood. So it invoked a section of the Securities and Futures Ordinance to seize Tiger Asia's gains on the transaction without going to either tribunal or criminal court.
In a decision of weighty learned talk, the Appeal Court said the ordinance allowed the SFC to do it.
I don't dispute this finding. I only say that if the ordinance allows it then we have a seriously bad piece of law and had better change it rapidly, relying on the Court of Final Appeal in the meanwhile to shield us from this invasion of civil liberties.
How can we take any pride in our legal system when it allows government agencies to penalise people for offences before proving these offences? It won't do to say that the law allows it. This just says that we have bad law.
Among the appeal court's reasons for its ruling were that the section of the ordinance the SFC invoked 'provides much needed ammunition ... to protect investors'.
If it does so, and this is debatable, it is at the price of aiming this loaded weapon at the entire general public in order to shoot a few of its members. Whatever happened to the idea of protecting the public from abuse of power? Are we to sacrifice due process to the SFC's over-developed notions of criminality?
The court also noted that 'in the present case the alleged contraveners are outside the jurisdiction. Criminal prosecution may be difficult or impossible'.
I'd like to see the SFC parrot these words when saying it protects investors in a market where most of the listings are China-based firms.
But it is an alarming view for a court to evoke. Are we to take it that our judiciary believes punishment is more important than a fair hearing, that rule of law is all very well unless the going gets tough and then it's fine to subvert rule of law?
Let's get this infringement of our rights to the CFA immediately.