Ex-Banker Guilty of Hong Kong Insider Trading
September 15, 2009
Image: Jeremy Woodhouse
A former Morgan Stanley investment banker has been found guilty of insider trading by a Hong Kong court.
Du Jun, a former managing director with Morgan Stanley's China fixed income group prior to his arrest last July, heard the guilty verdict Thursday following a 38-day trial in Hong Kong District Court.
Du been charged with investing HKD86 million ($11 million) in shares of CITIC Resources Holdings Ltd. ahead of that company's announcement of a major oilfield acquisition, a deal on which Du and Morgan Stanley had advised CITIC Resources. The banker realized a profit of HKD33.4 million ($4.3 million) after the deal was announced.
Du's prosecution had been the highest-profile of a string of insider trading cases brought in the past year by Hong Kong's Securities and Futures Commission. Only criminalized in 2003, insider trading previously was considered a civil offense and rarely penalized.
In a statement on the Du case, Mark Steward, the SFC's executive director of enforcement, said: "[T]his verdict underscores our dedication and commitment to protect ordinary investors from this type of misconduct and the SFC will continue to take on cases like this to ensure Hong Kong is protected from this kind of market misconduct."
Richard Chalk, head of the Asia litigation group for Freshfields Bruckhaus Deringer, says there is recognition in the Hong Kong business community that regulators there have grown far more aggressive. In addition to the insider trading prosecutions, Chalk notes that the SFC moved to block a proposed HKD15.9 billion ($2 billion) management buyout of local telecommunications giant PCCW Ltd. on suspicion of self-dealing. Chairman Richard Li, scion of Hong Kong's richest family, was forced to abandon the deal.
"There is a general theme of taking a harder look at corporate governance," says Chalk, who adds that outside firms clearly have a role to play in advising on regulatory investigations and compliance.
This article first appeared on The Am Law Daily blog on AmericanLawyer.com.