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Big-name hunters can obviously never bag the same tiger twice but, in Hong Kong, lawyers are debating whether the courts can go after a tiger that the US has already caught.
The tiger in question is one of the cubs of Tiger Management, the firm formerly run by Julian Robertson, one of the world’s best-known hedge fund managers. Tiger Asia Management is a New York-based fund, set up by protégés of Mr Robertson, which invested solely in Asian markets. Late last year, it pleaded guilty in a federal court in New Jersey to using inside information when trading shares of Bank of China and China Construction Bank. Between that plea and a settlement with the Securities and Exchange Commission, the fund paid $60m in fines.
In Hong Kong, the market regulator has long been involved in a battle to prove a bigger point with the Tiger Asia case, before it elects to pursue either a civil or a criminal case against the fund. The problem is that Tiger Asia – like half the investors trading in Hong Kong markets – is based offshore. Its people have to land in Hong Kong before authorities can arrest and prosecute them. Nobody visits with that threat waiting at customs.
The Securities and Futures Commission (SFC) of Hong Kong wants to demonstrate that it can punish rule breaking in the short term, initially by freezing Tiger’s assets and banning it from trading, while also retaining an option to pursue criminal prosecutions. Initially, the local High Court denied the SFC could do this. But that decision was overturned by the Court of Appeal. Next month, the Court of Final Appeal will settle the matter, with most lawyers expecting it to back the SFC.
The regulator would then get to prove its bigger point in theory, but the US court action means it may have lost its options in the Tiger Asia case in practice. The principle of double jeopardy – the idea that a person cannot be tried for the same offence twice – probably means these Tigers can no longer be prosecuted in Hong Kong, according to most lawyers. The SFC has been gazumped.
Some people in Hong Kong are concerned that this is part of a bigger pattern of the US authorities acting too robustly beyond their borders. One lawyer points to the example of the near $2bn in penalties paid by HSBC in the US over charges of money laundering, much of it relating to illegal Mexican drug activities.
It is arguable where the laundering activity itself took place, but the legitimate question is whether the funds would be better used by the Mexican government – which, after all, is fighting a drugs war and trying to protect its lawmakers and enforcers on the ground.
Even when global regulators co-operate across borders, as happened with the settlements for abuses of the Libor markets, it is the US that collects the lion’s share of the penalties no matter where the offences took place – mostly in London, Tokyo and Singapore.
Global regulatory co-operation is based on the assumption that regulators have first claim on acting against wrongdoing in their own backyard. The Tiger Asia settlement in the US is part of a broader publicity-generating crackdown on insider trading there.
If regulators can no longer rely on the basic assumption behind global co-operation then, according to one senior Hong Kong lawyer, that can only lead toa chaotic place where every regulator is out for itself.
With Tiger Asia specifically, it is debatable whether double jeopardy would apply. It is generally assumed that it would, though some local lawyers say that unless individuals have been prosecuted for exactly the same facts under exactly the same law it is no slam dunk.
Others believe that even cases unlike Tiger’s, where there is only a civil settlement with the SEC, most courts would be persuaded that double jeopardy applied – despite the fact that guilt is neither admitted nor denied. The principle has never been properly tested across borders in this way.
The SFC can still ban and fine Tiger Asia through its civil tribunal process whether it has the criminal option or not.
But there are two practical concerns. First, without a criminal option, offshore investors can never be jailed for their crimes in Hong Kong. This creates an incentive to seek a deal in a less-punitive market as an insurance policy against doing time. Second, if one regulator imposes a big fine, this simply cuts the funds left for a perpetrator to cough up in jurisdictions where the misbehaviour took place, and where the victims may be.
This has implications as much for London or Tokyo as it does for Mexico City and Hong Kong.
Paul J Davies is the Asia Finance Correspondent
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