Insider trader's victims may get their money back

PUBLISHED : Friday, 04 January, 2013, 12:00am
UPDATED : Friday, 04 January, 2013, 2:48am

Investors who sold shares in energy firm Citic Resources Holdings five years ago may receive money back from the biggest insider trader in the city.

The Securities and Futures Commission (SFC) on Wednesday said it would seek court direction over claims on former Morgan Stanley managing director Du Jun, who was convicted in Hong Kong's biggest-ever insider trading case.

The long-awaited action came after Du withdrew his application to appeal against his conviction, bringing the curtain down on all criminal proceedings in the case.

This paved the way for the SFC to start civil proceedings against him under Section 213 of the Securities and Futures Ordinance that allows the regulator to seek claims for victims of market misconduct like insider dealing.

Du's case could be the first instance of insider trading victims being compensated for their losses, but the second time the SFC would use the provision.

Last year, the 7,700 investors who bought shares in sport fabric maker Hontex International were paid back after a Hong Kong court in June ordered the firm to pay HK$1.03 billion to small shareholders on allegations that it provided misleading information in its listing prospectus.

While it was easy to identify the small shareholders who were the victims in the Hontex case, finding those who lost from Du's actions could be trickier.

As Du was privy to information not available to investors who sold him the shares, these investors were victims of his crime. But since the trades made on the Hong Kong stock exchange trading system are matched automatically without alerting the two parties to each other's identities, the victims did not know if they were trading against Du.

However, the counterparties of those trading with Du would all have been electronically recorded, which would help the regulator to trace the victims.

The SFC would, however, need to wait for the court to decide on the details such as how to calculate each investor's compensation and the logistics of paying back the money.