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Enoch Yiu

A Court of Appeal decision yesterday to  overturn a ruling by an Insider Dealing Tribunal marks only the most recent blow to the tribunal system and raises doubts as to whether   regulators can effectively punish insider dealing.

The decision  concerning Easyknit Group director Koon Wing-yee and acquaintance Sonny Chan Kin-shing requires that  tribunals be run like a criminal court and that they allow alleged insiders to keep silent.

The ruling had serious implications for the regulation of insider dealing, legislator Sin Chung-kai said, adding that he would like to see the government appeal.

'If no appeal is made, the government must seek ways to change the law to crack down on insider dealing more effectively,' Mr Sin said.

The ruling stands in contrast to the government's initial intention when it set up the tribunal system in 1991 after a law enacted a year earlier.

'The tribunals were intended to use a lower level of evidence similar to the civil court to bring the insiders to face disciplinary action,' a government source said yesterday. 'That is because  it is so hard to collect evidence beyond reasonable doubt as is required in a criminal case.'

The tribunals are also criticised for  slow progress  on cases and the difficulty in imposing penalties.

The US regulator  recently froze the assets of a Hong Kong couple a week after they allegedly traded shares in Dow Jones ahead of news the company was the subject of a takeover bid. In Hong Kong,  such cases can take up to eight years before action is taken.

The Securities and Futures Ordinance enacted in April 2003 replaced the Insider Dealing Tribunal with the Market Misconduct Tribunal, which can no longer impose fines.

The Market Misconduct Tribunal will hear and rule only on cases that have occurred after the new law was implemented in April 1, 2003. The Founder Holdings case heard on Monday dated from 2001, indicating that there may be many cases still outstanding under the old system.

The Market Misconduct Tribunal's inability to impose  fines means it has fewer teeth than its predecessor. It can only ban someone from being a director for up to five years or ban insider dealers from trading in the local market for a limited period.

The 2003 ordinance allows the SFC to charge insiders with criminal acts, which could carry a maximum penalty of 10 years in jail and a HK$10 million fine. But, as insider information is passed informally,  a criminal conviction backed by relevant evidence remains as remote as ever.



Reversal deals blow to insider tribunal