SFC scores victory over Tiger Asia in landmark ruling
In a landmark ruling, the Court of Final Appeal upholds regulator's right to sue New York hedge fund for compensation over insider trades in HK
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.
In a US$60 million settlement deal with the Securities and Exchange Commission in the US in December, Tiger Asia admitted making the insider trades. But it challenged Hong Kong's Securities and Futures Commission's right to pursue it for the offence even though the trades were carried out in the city.
The SFC had sought claims from the firm and banned its three senior executives - founder Bill Hwang Sung-kook, Raymond Park and William Tomita - from trading in Hong Kong.
The firm and the executives were charged for insider trading and market manipulation in December 2008 and January 2009 by short selling shares of China Construction Bank and Bank of China ahead of the placement announcements, pocketing a profit of HK$38.5 million.
The New York-based hedge fund initially won a Court of First Instance ruling in June 2011 that the SFC must first seek a criminal prosecution or civil inquiry for the insider dealing charges before it can sue to recover investors' losses.
That decision was overturned last year, with an appeals judge saying the regulator could independently seek civil remedies. Tiger Asia then took the case to the final court.
Court of Final Appeal Chief Justice Geoffrey Ma, heading a five-judge panel, yesterday dismissed Tiger Asia's plea, saying he would hand down the reasons in a written form later.
The ruling ends the legal battle between the SFC and Tiger Asia, but it may mark the start of another for the regulator to sue the firm to claim for investors.
The case confirms the SFC has the right to sue overseas firms for compensation under Section 213 of the Securities and Futures Ordinance without any need to first prove them guilty of insider dealing or other malpractices.
Tiger Asia has no office in Hong Kong, which made it difficult for the SFC to prosecute the firm as it could not get witnesses and suspects to attend the hearings. But it would be easier for the regulator to sue for monetary compensation for investors in the city.
The SFC's executive director of enforcement, Mark Steward, said the ruling "vindicates our position and our strategy in seeking remedial orders under Section 213", which allows the regulator to seek court orders for compensation.
The commission first used the section last year, when 7,700 investors of sport fabric maker Hontex International got their money back after a court ordered the firm in June to pay HK$1.03 billion to small shareholders for misleading information in its listing prospectus.
In January, it said it would seek court direction under the same section over claims on former Morgan Stanley managing director Du Jun, who was convicted in the city's biggest-ever insider trading case in 2009.
Du had bought shares of energy firm Citic Resources in 2007 before the company announced some major oil deals. The regulator wanted him to pay back the investors affected by his illegal trades.