Insider dealer ordered to pay back investors

In a landmark ruling, a HK court tells Du Jun to pay 297 victims HK$24 million for the money he earned from his illegal dealing in 2007

PUBLISHED : Friday, 13 December, 2013, 4:30am
UPDATED : Friday, 13 December, 2013, 4:30am

In a landmark ruling, a Hong Kong court yesterday ordered the city's biggest convicted insider dealer, Du Jun, to pay 297 investors almost HK$24 million for the money he earned from his illegal dealing in 2007.

Du, former managing director of Morgan Stanley Asia, was sentenced to seven years in prison and fined HK$23.3 million by the District Court in 2009 for his HK$87 million insider dealing of shares of Citic Resources in 2007 based on non-public information he got from his job. After an appeal last year, the sentence was reduced to six years and the fine cut to HK$1.69 million, with the judge wanting money reserved for investor compensation.

The Court of First Instance's Mr Justice Peter Ng Kar-fai yesterday ordered Du to pay HK$23.96 million to 297 investors as a result of his dealing in the shares between February and April 2007. When the Securities and Futures Commission started to investigate Du in 2007, it sought a court order to freeze his assets to prepare for compensation payments.

It is the first case in which an insider dealer has been ordered to compensate victims who were unaware they had been victimised. The SFC traced the 297 investors whose selling orders of Citic Resources shares were matched automatically by the trading system with Du's buying orders. The system is matched electronically, so the investors did not know they had traded with Du. Nor did they know he had inside information on hand.

The first such payback, made under section 213 of the Securities and Futures Ordinance, means the investors will get the price difference between when they bought the shares and May 2007, when the deal Du was aware of was made public. It will be handled by administrator John Lees of JLA Asia. The court also ordered Du to pay the SFC's legal costs and Lees' fees.

"Above all, this case sends a clear message that the consequences of wrongdoing, including the costs of restoration or remediation, should be met by wrongdoers and not be borne by innocent investors or the market," said Mark Steward, the SFC's executive director of enforcement.

"The 297 investors had no means to detect they were dealing with Du, who was engaged in illegal insider dealing. If they had known, they would not have sold their shares to him and certainly not at the same price."

Du's case is the first instance of insider trading victims being compensated for their losses under section 213 of the Securities and Futures Ordinance, but the second time the SFC has used the provision.

Last year, 7,700 investors who bought shares of Hontex International were paid back after a court ordered the sport fabric maker to pay HK$1.03 billion to small shareholders for allegedly misleading information in its listing prospectus.

At the time the crime was committed, Du was part of a team advising Citic Resources on a bond offer to finance oil asset acquisitions in Kazakhstan in late 2006 and early 2007 and received e-mails about the deals. He denied knowledge of the bond offer but the police found evidence on his BlackBerry that he had read through the e-mails.

Morgan Stanley learned about the offence and reported it to the SFC in May 2007. It fired Du a month later. Du then lived in Beijing for a year but was arrested at the Hong Kong airport when he returned to the city.

Insider trading was made a criminal offence in 2003.