Hong Kong's principal regulator (the Securities and Futures Commission) has confirmed that it has launched proceedings before the Market Misconduct Tribunal (MMT) against Tiger Asia Management LLC and three of its principal officers. MMT proceedings are civil in nature and are an alternative to criminal proceedings for cases of alleged market misconduct.
Readers of my blog in May 2013 will be aware that the SFC has already opened up a "third way" to prosecute alleged market misconduct. That third way is by means of section 213 of Hong Kong's Securities and Futures Ordinance (SFO) and is in addition to MMT or criminal proceedings; those other two options being mutually exclusive. Crucially, Hong Kong's appeal courts have recently ruled that the SFC can pursue section 213 civil proceedings in order to obtain final "restorative orders" and the like against transgressors, without there first being a finding of market misconduct (e.g. "insider dealing") in a criminal court or before the MMT.
It was, perhaps, something of a surprise that press reports began to circulate, as confirmed by the SFC's press release of 15 July, that the SFC is also pursuing MMT proceedings against Tiger Asia. The SFC's MMT "Statement for Institution of Proceedings" is dated 11 July 2013 and is available on the MMT's website (www.mmt.gov.hk - see link to the alleged impugned transactions i.e. "Bank of China and China Construction Bank", under "Rulings/Notices").
The MMT's role is to determine whether market misconduct has taken place and, if so, by whom. It can make a variety of orders, including an order that anyone identified to have engaged in market misconduct:
- pay the Hong Kong government an amount representing the profit gained or loss avoided as a result; and/or
- be disqualified from holding directorships (and the like) and/or from trading in certain asset classes for up to five years, other than with permission of the court (breach of which would constitute a criminal offence).
A number of observations can be made at this stage and as matters evolve.
- The SFC's "second shot" across Tiger Asia's tail (if my mixed metaphor can be excused) suggests that it has no intention of backing-off. Indeed, the SFC seems intent on raising the stakes. That said, MMT proceedings are not known for their speed and could take a couple of years or so to conclude. The SFC's press release states that its section 213 proceedings "are continuing", now that the jurisdictional issue has been resolved.
- MMT proceedings are an alternative to criminal proceedings. Therefore, Tiger Asia and the three officers concerned no longer face the prospect of criminal proceedings in Hong Kong arising out of the particular transactions under investigation by the SFC. In any event, criminal proceedings may have been impractical given that Tiger Asia and the officers concerned are based in New York and, presumably, have no particular inclination to pass through Hong Kong anytime soon.
- The MMT proceedings are also an acknowledgment by the SFC that criminal proceedings against Tiger Asia in Hong Kong could fall foul of the common law "double jeopardy" rule (that still exists in Hong Kong), given that Tiger Asia has already settled related "insider dealing" offences in the US and two of its officers were charged with related civil offences by the SEC.
- This is the first time that the SFC has itself initiated proceedings before the MMT; up until 2012 only Hong Kong's Financial Secretary had done so. It will be interesting to see if the SFC is able to progress these MMT proceedings any quicker than has been the case in the past; the expectation is that it might, although that is possibly not saying much. As it is, the transactions under investigation took place well over four years ago. To date, there has been no finding in Hong Kong that Tiger Asia or its officers engaged in any wrongdoing.
- If Tiger Asia and the officers concerned choose to defend the MMT proceedings (and it will be interesting to see if they do) some interesting questions concerning coverage for "defence costs" and other policy issues could arise under any applicable insurance policies.