A Hong Kong court ... ordered US hedge fund Tiger Asia Management and two senior executives to pay more than HK$45 million to about 1,800 investors for insider dealing of shares in two Hong Kong-listed mainland banks in 2008 and 2009.
SCMP, December 21
I wonder what it feels like to stand up in court and plead guilty to a crime that you know is a not a crime, that only regulators with scant familiarity of the industry they regulate could ever dream of as a crime.
What does it feel like to have your lawyers tell you that you have no choice, that this just happens to be the way the law works, that justice has nothing to do with it and that you can expect little sympathy from a judge who may also not understand and is in any case hemmed in by previous rulings?
The helpless rage it must produce was the lot last month of Bill Hwang and Raymond Park, the two senior officers of Tiger Asia who admitted insider dealing. It saved them from a possible prison sentence, which is the only reason I think they did it.
The miscarriage of justice here was occasioned when Tiger Asia was called by a corporate financier with an offering of a share placement in a mainland bank.
In order to help it make its decision on whether to accept the offering, Tiger Asia was given details of the placement, which were not made known to the entire market. It reviewed what it was told and, rather than buy, it decided to sell the stock.
This, says the Securities and Futures Commission, was dealing on inside information.
Let's parse this muddled thinking. If indeed the placement details that the corporate financier gave to his clients constituted inside information then it should have been illegal to take advantage of it in any way, either by buying or selling.
Clients who bought the stock had the advantage of privileged information not made available to the overall market. This conferred on them a benefit that other investors would also have found useful in deciding whether or not to buy the stock.
If, however, our regulators hold that this particular piece of inside information was not inside information when buying the stock, how can they then hold that it was inside information when selling the stock?
It has to be either one or the other, none of this have-your-cake-and-eat-it-too fantasy.
If it is inside information then no one who is given it should have been allowed to deal on the basis of it. If it is not inside information then anyone should be free to buy or sell on it as they wish.
To evade this obvious flaw in its reasoning, the SFC has argued that Tiger Asia agreed with the corporate financier not to deal in the shares after being told the placement details.
I'm sure it's true. It is standard practice and the fact that Tiger Asia then broke the agreement might give the corporate financier grounds to sue Tiger Asia in court.
But this is between the corporate financier and Tiger Asia. It does not magically make inside information out of something that was not inside information before. It has nothing to do with the SFC and just muddies the waters.
What we have here is investment banks that like to collect underwriting fees without underwriting. Led by New York practice, they have long got away with this form of having their cake and eating it too.
When putting their signatures on a share placement underwriting, they first sell all the stock by calling their clients for "expressions of interest". The clients naturally want to be told a little about what they are buying and won't be fobbed off with useless information.
The whole business of share placements is thus now based on providing inside information to select investors and this practice is fully condoned by the SFC.
But, obviously, these placements might not go so well if the beneficiaries can also sell the stock on the basis of the inside information they get.
So now we have an SFC in cahoots with investment banks to make it inside information if people sell but not if they buy.