In another decision against the SFC, the Market Misconduct Tribunal ("MMT") has found Mr Cheng Chak Ngok ("Mr Cheng"), former executive director, chief financial officer and company secretary of ENN Energy Holdings Limited, not guilty of insider dealing in the shares of China Gas Holdings Limited.

The MMT found that the SFC had not proved that Mr Cheng had dealt in shares to the requisite standard of proof.

The SFC asserted that, in 2011, Mr Cheng used the trading account of one Li Wei ("Ms Li") to effect his dealing in the shares, but the MMT found a lack of cogent evidence to connect the two, despite a number of suspicious inferences.

The Legal Requirements

Section 270 of the SFO provides:

"Insider dealing in relation to a listed corporation takes place […] (a) when a person connected with the corporation and having information which he knows is inside information in relation to the corporation (i) deals in the listed securities of the corporation…" (Emphasis added.)

The MMT found that Mr Cheng was a connected person in respect of China Gas, that the information was "inside information", and that Mr Cheng had the requisite knowledge. The SFC failed to prove that Mr Cheng dealt in the relevant shares.

The requirement to deal

The SFC sought to persuade the MMT of Mr Cheng's market misconduct by drawing compelling inferences from the following; and examined each point in turn:

  1. the sources from which the bids for shares were made;
  2. the timing of the bids, given Mr Cheng's possession of inside information including the anticipated general offer;
  3. the flow of funds between the three principal parties – that is Mr Cheng, Ms Li and Mr Fong, a middleman; and
  4. Mr Cheng's relationship with Ms Li and control of her bank account, securities account and correspondence which came to him at all material times.

The MMT found that the evidence placing Mr Cheng at the offices of ENN at the date and time of each internet bid was questionable given the lack of actual times he was present. This was an important factor given that the records revealed that the relevant bidding orders were made from the computers in the offices of ENN and it was not possible to trace the bids to any particular terminal within the offices and therefore to one that was under the exclusive control of Mr Cheng. For bids placed through Ms Li's account by smartphone, there was no evidence as to who used a smartphone or whose smartphone was used.

While the MMT was satisfied that Mr Cheng possessed the necessary inside information during the time frame in which the bids were placed, that was not sufficient to find him guilty of market misconduct.

In relation to the flow of funds and relationship, the MMT described the vagueness of the relationship between Mr Cheng and Ms Li as "the ultimate hurdle that the SFC could not overcome".

Mr Cheng had known Ms Li to be a person of importance to ENN and had been instructed to ensure she was taken care and assisted. In addition to other favours, he had transferred funds to her so that she and others could gamble in Macau. Further the amount of funds transferred did not match the purchase price of the shares.

The MMT held that the SFC had failed to fully demonstrate the extent to which Mr Cheng had authority and control over her accounts or whether he was the only person with any control. The lack of evidence from Ms Li made it difficult to understand the complete mechanics of the relationship.


This is another example of a recent decision where the MMT has not found in favour of the SFC (such as the MMT's rejection of the SFC's claim of dissemination of false or misleading information in the CITIC case). While it may often be more prudent to negotiate with regulators, we are seeing an increasing trend in the MMT making findings against the SFC, and these successive rulings may help rectify the perception of a tendency of the MMT to favour the SFC.