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Jake's View
PUBLISHED : Thursday, 02 May, 2013, 12:00am
UPDATED : Thursday, 02 May, 2013, 3:47am

Seizing assets with no conviction imperils rule of law

The SFC's court victory over Tiger Asia does not make its actions just in a civilised society


Jake van der Kamp is a native of the Netherlands, a Canadian citizen, and a longtime Hong Kong resident. He started as a South China Morning Post business reporter in 1978, soon made a career change to investment analyst and returned to the newspaper in 1998 as a financial columnist.

The Court of Final Appeal made a landmark ruling yesterday, upholding the Hong Kong regulator's right to seek compensation from United States fund house Tiger Asia Management over its insider dealings in the city.

SCMP, May 1

Let's be a little careful here, my dear colleagues, about assuming that people have committed crimes when they have not even been tried for them.

As even the Securities and Futures Commission, now crowing over this Court of Final Appeal decision, must concede, Tiger Asia has not been convicted of insider dealing, nor even brought to trial for it.

The question is whether section 213 of the Securities and Futures Ordinance empowers the SFC, through a court order, to seize the assets of someone who it thinks may have committed insider dealing but who has not been convicted of it and may never be.

The ordinance (I hesitate to disgrace the word "law" by calling it such) says the SFC does not need a conviction in a proper court of law or even in one of its own kangaroo courts (market misconduct tribunals) to get a seizure order. What is required is only a declaration to the Court of First Instance that it "appears" to the SFC that an offence "has occurred, is occurring or may occur".

When the SFC tried to pull this fast one off in the Tiger Asia case, it was told by the Court of First Instance to take a hike. People have some rights in a jurisdiction that supposedly observes the rule of law, the court said in so many words. If you want a court seizure, you get a court conviction first.

We're appealing, said the SFC in instant response (and a fit of pique). The ordinance says we can do it, so there. We don't need a conviction.

And a Court of Appeal judge agreed. As the SFC quoted him in its press release on this appeal decision, "section 213 'provides valuable tools to the commission to protect the investing public, which is an important objective of the [ordinance] …' and '… much needed ammunition to the commission to protect investors'".

We have some curious ideas here. Catching thieves is an important objective of the police in their mission to protect the public, and waterboarding suspects could prove a valuable tool in achieving this end. Yet in civilised society we don't allow it. Some things are more important than valuable tools.

Likewise the much-needed ammunition. If the SFC truly needs more ammunition (which it doesn't), it might find that dum-dum explosive bullets have a wonderful deterrent effect on insider dealers.

In law, however (as opposed to certain ordinances), the effectiveness of ammunition is not the final determining factor in what ammunition we allow law enforcement agencies to use. Hong Kong is not Afghanistan.

I do not know what reasons Court of Final Appeal Chief Justice Geoffrey Ma will now offer for siding with SFC. He will hand down his written reasons later and I suppose he is constrained by the fact that the ordinance does actually say that the SFC needs no conviction. I would not like to be holding his pen just now.

It was a sad day for legal rights when the Legislative Council passed this travesty of justice, although it's not the first blatant invasion of the rule of law we have suffered in recent years.

Now I know the SFC may say that a seizure order is not punishment but a precautionary measure to ensure that investment assets are available should a court later order them forfeited after a conviction.

But the problem with such a precautionary measure in the investment industry, where reputation is paramount, is that it can easily destroy a thriving business as well as the livelihoods of people involved in it, driving them into penury and misery for the rest of their lives.

As a non-punishment, its effect can be not much short of a very long-term prison sentence, which is all the more reason why it should not be imposed without a criminal conviction.

Would the SFC care to post bonds for full compensation to victims of such precautionary measures should no convictions ensue? The sums could run into the billions.

Just asking.



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This article is now closed to comments

P.S. if you want to take up cudgels for the rule of law, why don't you do some in depth investigations into the corruption of some of our so-called representatives, officials and members of official bodies who have no respect for any law? Or would that be too much like hard work, or require some proper journalistic independence and integrity?
The CFA is applying the law in the statute book, period. The SFC has been given such powers because in former years wealthy crooks were ripping off innocent investors and getting away with it.
Jake, the more you say on the rule of law the more you make a fool of yourself because you appear to be siding with the thieves and money launderers instead of the public, who are the real victims.
e you used to sound so amusing with sarcastic terms of address and words of endearment usw. But then you used to be right and readable.
This piece makes my hair stand on end. If it is a law in Hong Kong, don't be such an **** and use the twee 'enactment' and add that you hesitate to call it a law. Who are you and why do we have to think your hesitation is amusing?
Barclays and HSBC other European banks quickly coughed up hundreds of millions of US$ just because the NY investigators 'claimed' that LIBOR had been fixed and
So why don't you ask the U.S. Feds in the land of "freedom and democracy" , how come they also keeping fining local and overseas banks billions of dollar without any of them having been formally charged and convicted of any crimes?
Someone has to do it Jake, or else little old ladies living on social welfare will be forced to continue pushing wheelbarrows full of cash to the banks on behalf of their bent sons-in-law.
Mr van der Kamp is lately making a habit of making sweeping statements about the respect for the Rule of Law, while in the same breath he personally disrespects independent court rulings. He still does not seem to understand that part of the Rule of Law means having to accept that sometimes the court rules against you. Tiger won at the Court of First Instance, now they lost the appeal. Tough luck. He may disagree with the judgement, and these make for interesting debates, but please spare us the babble about how any ruling he holds a different opinion about threatens the Rule of Law. It is becoming embarrassing really.

Now very importantly, the SFC did not seize assets, it had them frozen, and banned Tiger from trading in HK. And given the serious suspicions, that is entirely reasonable. If not, those assets would flee out of reach faster than you can say 'Cayman Islands,' and the SFC would be left without recourse if indeed insider dealing is proven. If not, the assets will be released. It is entirely normal to freeze assets about which there is any form of legal uncertainty, and by definition this precedes a court ruling.

Will Tiger have suffered severe damage anyway by then? Sure, but they can indeed seek compensation. But moreover, any such asset manager should be a lot more careful. It is part of prudent fund risk management to avoid even just the appearance of conflicts of interest and insider trading. At the very least, this fund clearly failed to do this.
"kangaroo courts (market misconduct tribunals)"? How so? The MMT is run along the lines of the courts in Hong Kong, is presided over by a High Court judge, parties send their legal counsel along to represent them, evidence is given under oath, proceedings are open to any member of the public interested, written reasoned "reports" (like judgments) are published on line immediately they are issued and the decisions and the proceedings are subject to appeal to the courts. I don't know what species of kangaroos Jake has in mind but the ones I know haven't been anywhere near Hong Kong's MMT.
"Tiger Asia has not been convicted of insider dealing, nor even brought to trial for it."
Tiger Asia may not have been formally convicted in our courts, but it was found criminally guilty in Japan and the US for this charge. It had to pay serious penalties.
Not knowing enough about priorities and conflict resolution among HK branches of administrative, tort and criminal laws (sorry, I spent my intellectually formative years in North America), I venture to guess that SFC chose to exercise its regulatory prerogative and administrative judicial power vested herein to fine Tiger Asia. Presumably, this was then litigated later as a tort case.
Given what had transcended in the US and Japan, SFC has a strong case for its decision.
I am a serious investor and I share Jake's sentiment against illegal seizure. Were I a Tiger investor, I wouldn't complain about this case.
What I find singularly ridiculous is the soi-disant rule of law that seldom punishes the guilty party.
I lost very serious money in the financial sector during 2008. I accept my loss investing in risky assets. But in the nationalization of Fannie Mae & Freddie Mac, shareholders were totally wiped out when perpetrators of special investment vehicles making billions are not prosecuted. There are no claw-backs either. Investors are responsible for risky bets but not festering frauds aided and abetted by the government. US and UK are safe havens for financial crooks.
That should be your target, Jake.
Had Hong Kong filed criminal charges like the US and Japan against Tiger Asia managers, I am sure they wouldn't dare to litigate against SFC. Goes to show how our Department of Justice and constabulary are cowed by foreign media and our own street mobs.
HK slips closer to China every day. In China the courts are there to enforce govt policy and it seems the CFA is toeing the govt line in this regard.
As to the irrelevance of your comment, may I ask why do you beat your wife.


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