Prosecuting "insider dealing" in Hong Kong
Hong Kong's top court expected to confirm there is a "third way"
On 30 April 2013, the Court of Final Appeal in Hong Kong ("the CFA") dismissed the appeal in Tiger Asia Management LLC & Ors v Securities and Futures Commission ("the SFC"), FACV Nos. 10, 11, 12 and 13 of 2012.
In doing so, the CFA judgment has upheld a Court of Appeal judgment deciding that the Court of First Instance in Hong Kong has jurisdiction under section 213 of the Securities and Futures Ordinance ("the SFO") to make a determination in civil proceedings commenced by the SFC that there has been "market misconduct" and to make final "remedial orders". Crucially, such a determination is not dependent on their first being a finding of market misconduct (e.g. "insider dealing") by either the Market Misconduct Tribunal ("the MMT") or a criminal court in Hong Kong. In this case, the SFC is seeking "remedial orders" against Tiger Asia Management LLC (a New York based hedge fund) and three of its managers.
To pursue market misconduct under section 213, it would appear to be enough that the SFC persuades a civil court (on a civil burden of proof) that there has been a contravention of, among other things, one or more of the relevant provisions of the SFO; an actual finding of a contravention, as part of a determination by the MMT or a criminal court, is not necessary.
The CFA's written judgment (with reasons) will be handed down on a "date to be notified"; expected to be a matter of weeks. The written judgment is awaited with considerable interest in the financial markets in Hong Kong. It opens the possibility of the SFC pursuing civil proceedings for alleged contraventions of the SFO and (if successful) enforcing civil judgments against defendants wherever they may be based. It remains to be seen how the SFC will use this power in practice going forward. However, there appears to be a "third way" (besides the MMT or criminal courts). Interested stakeholders such as directors and officers and their insurers will be taking note.
Once the CFA's written judgment is released we will write more about its implications.