Inside dealer 'based trades on own research'

PUBLISHED : Wednesday, 25 April, 2012, 12:00am
UPDATED : Wednesday, 25 April, 2012, 12:00am

Former Morgan Stanley managing director and convicted insider trader Du Jun yesterday argued in the appeal court that he had only traded shares based on his own research and had not used confidential information obtained from e-mails.

Du, a Beijing-born investment banker, read documents while his lawyer, John Griffiths SC, presented his submission to Court of Appeal vice-president Justice Frank Stock and two other judges on the first day of a four-day hearing.

Du, the biggest insider trader yet convicted in Hong Kong, is trying to overturn his insider dealing conviction in the District Court in September 2009, as well as a seven-year prison sentence and a HK$23.3 million fine. His sentence was the maximum allowable in the District Court and the toughest ever imposed for insider trading in Hong Kong.

Griffiths said insider dealing was a criminal conviction and required a high standard of proof, which the case against Du had failed to meet.

Insider trading - using non-public information on listed companies to trade to make a profit or avoid a loss - has been a criminal offence in Hong Kong since 2003. In late 2006 and early 2007, Du was involved in helping his client, Citic Resources, to issue bonds to buy a Kazakhstan oilfield and to carry out oil hedging. As a result, Du received e-mailed updates about the deals from early 2007.

Between February and April 2007, he bought Citic Resources shares nine times for a total of HK$87.1 million using his savings and HK$50 million in borrowed cash.

When the deals were announced in May 2007, Citic Resources' share price rose sharply and Du made a HK$33 million profit. A month later, Morgan Stanley learned of his trading activity, sacked him and reported the case to the watchdog, the Securities and Futures Commission (SFC).

Du went to live in Beijing for a year and was arrested when he returned to the city to collect a picture and a small air purifier from his old office.

During the District Court hearing in 2009, Du denied reading e-mails about Citic Resources deals. However, prosecution evidence showed that Du's BlackBerry had been used to open and scroll through five e-mails related to the deals from early February 2007 before his first purchase of Citic Resources shares on February 15 in 2007.

In the appeal hearing yesterday, Griffiths argued Du was not trading based on the information from the e-mails.

'He [Du] only traded the shares of Citic Resources based on his own research as the market sentiment at that time was positive,' Griffiths said.

Griffiths also said media reports and market rumours had speculated over possible Citic Resources deals, so the e-mails did not contain confidential information but public information. He also said a business plan mentioned in the e-mails had not been implemented, so should not be considered as inside information.

Du had also won approval to trade the shares from the bank's compliance section, which showed that he had followed the bank's rules, Griffiths said.

In the original District Court hearing, the prosecutor said Du could only have received approval because compliance staff had misheard Du, thinking he wanted to trade Citic Pacific, instead of Citic Resources.

The hearing continues.


Du Jun wants to overturn his 2009 conviction, a jail term of this many years, and a HK$23.3 million fine



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