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Hong Kong – Enforcement News.
28 July, 2013

Public Censure for Failing to Disclose Price-sensitive Development 


In May, Ausnutria Dairy Corporation Limited (the “Company”) was censured for failing to disclose price-sensitive information relating to the business and financial performance of the Company, and repurchasing shares without making such disclosure. An executive director was also censured for failing to use his best endeavors to procure compliance by the Company with the Listing Rules. 


The Company was found to have breached previous Listing Rules 13.09 and 10.06(2)(e) as: 

  • the significant deterioration in the Company’s performance in the second half of 2010 was not in the public domain, nor within market expectations, and was price-sensitive information disclosable by the Company under previous Listing Rule 13.09(1); 
  • the Company’s obligation to publish an announcement disclosing the performance deterioration arose in September 2010, when the CEO (who was also an executive director) received the August monthly accounts reporting a 35% revenue and 77% profit drop compared to the corresponding period in 2009; and
  • the Company’s publication of a profit warning announcement in February 2011 was not a disclosure made “as soon as reasonably practicable” or “without delay” as required by the Listing Rules. 


As a result, investors and shareholders who traded in the Company’s shares during the relevant period (including selling shares to the Company in its repurchases) did so on an uninformed basis and were harmed. 

 

Tiger Asia: SFC’s Powers under Section 213 Upheld in Landmark Appeal


In April, the Court of Appeal handed down a landmark decision that bolstered the reach of the Securities and Futures Commission (SFC) in insider trading cases. The Court affirmed the SFC’s authority to seek remedial orders and injunctive relief under Section 213 of the Securities and Futures Ordinance (SFO) without the need for criminal proceedings, or civil proceedings before the Market Misconduct Tribunal (MMT). 


Tiger Asia Management LLC (Tiger Asia), a New York-based asset management company with no physical presence in Hong Kong, was accused of short-selling China Construction Bank Corporation Limited (CCB) and Bank of China Limited (BOC) shares based on inside information in 2008 and 2009. Four years ago, the SFC began an investigation of Tiger Asia and sought to freeze its assets and restrain it from trading on the Exchange under Section 213 of the SFO. 


Tiger Asia had previously argued that the Court did not have jurisdiction to make the declarations sought by the SFC before any finding by the MMT or a criminal court. The Court of Appeal dismissed the argument, by stating that:

 

  • it “simply does not follow” from the creation of criminal and MMT procedures for dealing with market misconduct that such procedures are exhaustive for determining whether there has been a contravention;
  • the remedies under Section 213 of the SFO serve a different purpose from the penalties that can be imposed under the criminal and MMT processes;
  • in proceedings under Section 213, the SFC acts “not as a prosecutor… but as protector of the collective interests of the persons dealing in the market who have been injured by market misconduct”; and
  • the question of whether a person has committed a criminal offense remains entirely a matter for the criminal court and is not a matter that is determined in proceedings under Section 213 which are plainly civil proceedings.

 

Tiger Asia: SFC Commences Action in MMT

 

Following the Court of Appeal’s decision described above, the SFC in July has launched proceedings in the MMT against Tiger Asia and three of its officers, alleging that they are guilty of market misconduct in relation to dealings in the securities of CCB and BOC during 2008 and 2009. 


This is the first time the SFC has instituted proceedings in the MMT directly. The grounds of the SFC’s proceedings are based on insider dealing and market manipulation. If the MMT, chaired by a judge or former judge of the High Court who sits with two other members, finds there has been market misconduct, it is empowered to make a range of orders, including banning a person from dealing in securities, futures contracts or leveraged foreign exchange contracts in Hong Kong without leave of the Court for a period of up to five years. 


The SFC has not commenced any criminal proceedings against Tiger Asia and the three officers, as criminal proceedings have already been initiated in the US against Tiger Asia (which pleaded guilty to criminal offenses under US law) and two of the officers have been charged with civil offenses by the US Securities and Exchange Commission. The SFC has received advice that both of these actions would likely be classified as criminal proceedings under Hong Kong law, which could bar criminal proceedings in Hong Kong for the same conduct on the basis of double jeopardy.

 

 

For further information, please contact:

 

John Moore, Partner, Morrison Foerster
johnmoore@mofo.com
 

Stephen Birkett, Morrison Foerster

sbirkett@mofo.com

 

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