Insider dealer ordered to pay back investors

In a landmark ruling, a Hong Kong court yesterday ordered the city's biggest convicted insider dealer, Du Jun, to pay 297 investors almost HK$24 million for the money he earned from his illegal dealing in 2007.

Du, former managing director of Morgan Stanley Asia, was sentenced to seven years in prison and fined HK$23.3 million by the District Court in 2009 for his HK$87 million insider dealing of shares of Citic Resources in 2007 based on non-public information he got from his job. After an appeal last year, the sentence was reduced to six years and the fine cut to HK$1.69 million, with the judge wanting money reserved for investor compensation.

The Court of First Instance's Mr Justice Peter Ng Kar-fai yesterday ordered Du to pay HK$23.96 million to 297 investors as a result of his dealing in the shares between February and April 2007. When the Securities and Futures Commission started to investigate Du in 2007, it sought a court order to freeze his assets to prepare for compensation payments.

It is the first case in which an insider dealer has been ordered to compensate victims who were unaware they had been victimised. The SFC traced the 297 investors whose selling orders of Citic Resources shares were matched automatically by the trading system with Du's buying orders. The system is matched electronically, so the investors did not know they had traded with Du. Nor did they know he had inside information on hand.

The first such payback, made under section 213 of the Securities and Futures Ordinance, means the investors will get the price difference between when they bought the shares and May 2007, when the deal Du was aware of was made public. It will be handled by administrator John Lees of JLA Asia. The court also ordered Du to pay the SFC's legal costs and Lees' fees.

"Above all, this case sends a clear message that the consequences of wrongdoing, including the costs of restoration or remediation, should be met by wrongdoers and not be borne by innocent investors or the market," said Mark Steward, the SFC's executive director of enforcement.