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Naomi Rovnick

As the Securities and Futures Commission lost its legal bid to derail Richard Li Tzar-kai's HK$15.93 billion PCCW privatisation on suspected vote rigging, the judge also blessed share-splitting, a tactic wealthy speculators can use to swing buyout votes.
Madam Justice Susan Kwan Shuk-hing found Eugene Chuang, the head of stockbroker Chung Nam Securities, doled out PCCW shares to clients to boost the number of people backing the privatisation. But she also ruled this was legal, saying: 'The splitting of shares is not prohibited activity in Hong Kong.'
The February 4 investor meeting approving Mr Li's buyout had 1,404 votes for and 859 against. 
As well as bringing the Chung Nam case forward, the SFC alleged Fortis Insurance regional director Inneo Lam Hau-wah had divided 500,000 of his PCCW shares among 495 employees and urged them to vote for the takeover. The judge found no evidence Mr Lam had done so.
In court-sanctioned schemes of arrangement, such as the PCCW buyout, 75 per cent of shareholders must agree deals. 
Under the city's so-called 'headcount rule' each investor has one vote. But investors can give shares to associates so they each get votes too, as well as asking them to agree to use these votes to back buyouts.
Madam Justice Kwan found Mr Chuang bought 125 board lots of PCCW shares and allocated them to clients. 'The purchase of 125 of single board lots would appear to be financed by Eugene Chuang,' she said. 
Chung Nam ordered the shares in January. People receiving them included Wong Sau-chan, an illiterate cleaner who did not know she had opened an account with Chung Nam. 
The judge also found companies associated with Mr Chuang had money riding on the PCCW deal. 
Smart Jump, a subsidiary of Hong Kong-listed financial firm Willie International Holdings, chaired by  Mr Chuang's brother, Henry, bought 14.04 million  PCCW shares in December last year. 
In the same month Main Purpose, a subsidiary of locally listed investment firm GR Vietnam Holdings, whose directors are friends with Eugene Chuang, also bought 27.3 million  PCCW shares. 
 SFC chief executive Martin Wheatley argued splitting shareholder votes to frustrate the results of a takeover meeting should not be allowed. He wants the Court of Appeal to clarify the point. 
The government would consult the market about company law reforms including privatisation schemes in the fourth quarter, a Financial Services and Treasury Bureau spokesman said.
Timothy Loh, principal of financial services law firm Timothy Loh Solicitors, said share-splitting was not a  well-known tactic until now. 
Shareholder activist David Webb said: 'This introduces chaos on future [buyout] schemes until the law is amended.' 
Several hedge fund managers sat in the public gallery at last Thursday's PCCW hearing. 
One said he was there to seek clarification on the voting rules for 'investment strategy'.
None the wiser
Illiterate cleaner among those who received shares from Chung Nam 
The number of Fortis Insurance  staff who were given PCCW shares: 495



Judge says splitting of shares not prohibited activity in Hong Kong