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Hong Kong – Court Orders Re-Trial On Insider Dealing Case: CITIC Pacific Limited.

5 December, 2013

 

Legal News & Analysis – Asia Pacific – Hong Kong – Dispute Resolution

 

On 10 September 2013, the Court of First Instance allowed the appeal of Mr Simon Chui Wing Nin, a former assistant director of finance at CITIC Pacific Limited (CITIC Pacific), against his convictions for insider dealing and ordered a re-trial. In November 2012, Chui was found guilty at Eastern Magistrates’ Court of two counts of insider dealing in CITIC Pacific shares and sentenced to 15 months’ imprisonment, fined HKD1,018,855 and ordered to pay the SFC’s investigation costs of HKD228,469. He was also disqualified from being a director of corporations in Hong Kong, including listed corporations, for three years.

 

The Magistrate heard that Chui was involved in assessing the impact of the fall in the Australian dollar in mid-2008 on a number of foreign exchange derivatives contracts, including target redemption forward contracts in Australian dollars, that CITIC Pacific had entered into to hedge its position in funding an Australian mining subsidiary. The target redemption forward contracts were similar to accumulator contracts, requiring CITIC Pacific to purchase a multiple amount of Australian dollar if it fell below designated strike rates.

 

By late August 2008, the Australian dollar had fallen significantly against the designated strike prices in the contracts. Chui was involved in calculating the financial impact on CITIC Pacific and knew that CITIC Pacific faced a very substantial mark to market loss that would materially impact the company’s financial position. Whilst in possession of that information and before it was generally available, Chui sold most of his shares in CITIC Pacific.

 

On 20 October 2008, CITIC Pacific announced a mark to market loss, as at that point, of over HKD14.7 billion, sending the share price down approximately 60%.


Mrs Justice Bokhary found that the trial Magistrate had not given adequate reasons in his decision when dismissing Chui’s arguments concerning expert evidence on the price sensitivity of the information that the SFC alleged was in Chui’s possession. Chui’s lawyer had argued that the expert’s opinion was deficient, but the Magistrate dismissed those arguments. Mrs Justice Bokhary said that the arguments put forward by Chui’s lawyer needed to be addressed by the Magistrate in giving his reasons because giving adequate reasons is a principle of paramount importance in the common law system. Mrs Justice Bokhary therefore quashed Chui’s conviction, set aside his sentence and ordered a
re-trial.

 

Deacons

 

For further information, please contact:

 

Joseph Kwan, Partner, Deacons
[email protected]

 

Deacons Dispute Resolution Practice Profile in Hong Kong

 

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