February 23, 2012 5:52 pm

HK regulator wins appeal over Tiger Asia

The Hong Kong market regulator has secured a victory in its efforts to ban Tiger Asia Management, the New York-based hedge fund, from trading listed stocks and derivatives in the city and freeze more than $30m in assets.

The hedge fund is accused by the Securities and Futures Commission of insider trading in shares of China Construction Bank (CCB) and Bank of China (BoC) in 2009.

The Court of Appeal in Hong Kong on Thursday granted the regulator’s appeal against a High Court decision last summer when the judge had claimed he did not have jurisdiction to order the punishments sought by the SFC.

The High Court in effect had said the regulator was taking a short-cut, when it needed instead to rely on either a criminal conviction or a civil decision by the market misconduct tribunal.

The appeal decision is crucial in the SFC’s efforts to retain an option to pursue criminal prosecutions of offshore managers in the longer term, while still punishing contraventions of its rules in the short term. Taking a complaint to the MMT precludes a criminal prosecution, but it is difficult to bring prosecutions in a market where almost half of trading is done by offshore investors, according to stock market data.

Judge Robert Tang from the Court of Appeal wrote in the judgment delivered on Thursday that the defence counsel’s “complaint seems to be that the administration is not willing to give up on criminal prosecution”.

Judge Tang added that he had not been persuaded that the proceedings brought by the SFC were an abuse of Hong Kong’s securities and markets regulations under section 213.

“Rather, they support my view that Section 213 provides much needed ammunition to the commission to protect investors,” wrote Judge Tang. “I do not agree that it is reasonable or desirable that investor’s protection . . . should come at the price of forgoing criminal prosecution.”

Mr Mark Steward, the SFC’s executive director of enforcement, said: “The SFC welcomes today’s ruling, which vindicates the position we have taken in relation to section 213 proceedings. The SFC will continue to prosecute these cases fairly and vigorously.”

Tiger Asia and three of its senior managers, Bill Hwang, founder, Raymond Park and William Tomita, are accused by the SFC of making short-sales of shares in CCB and BoC after being given advance notice that strategic shareholders in those banks were about to sell down their stakes.

Lawyers for the defendants did not have any immediate comment, while the defendant could not be reached. Tiger Asia denied any wrongdoing when it was first accused of insider trading by the SFC.

Martin Rogers, a partner at Clifford Chance in Hong Kong, which was not involved in the case, said he thought the Court of Appeal had made the right decision.

“I believe it is the correct decision. Otherwise, it does make it difficult for effective regulatory action to be taken in a number of scenarios, including the Tiger Asia case,” he said.

Tiger Asia could still pursue a further review at Hong Kong’s Court of Final Appeal, but Mr Rogers said he thought the court was unlikely to make a different decision in this case.

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