The Securities and Futures Commission ("SFC") commenced a series of test cases seeking to use section 213 of the Securities and Futures Ordinance ("SFO") as a third route of market misconduct enforcement. One of the most important of these test cases is SFC v Tiger Asia. In that case, the SFC accused Tiger Asia, a US-based hedge fund, of insider dealing. However, since the defendants are based in the US, the SFC could not commence criminal proceedings against the defendants in Hong Kong. Furthermore, bringing action through the MMT would be time consuming and would preclude the SFC from bringing criminal action against the defendants should they set foot in Hong Kong. The SFC tried instead to by-pass the whole dual enforcement regime by commencing proceedings against Tiger Asia under section 213 of the SFO. The Court of Final Appeal decision in the Tiger Asia case handed down on 10 May 2013 is a landmark decision which clarifies the enforcement options available to the SFC under the SFO.
Under the conventional view, the SFO establishes a dual enforcement regime under which the SFC can pursue civil proceedings through the Market Misconduct Tribunal ("MMT") or alternatively criminal proceedings through the criminal courts with respect to market misconduct. The enforcement options in the dual enforcement regime are mutually exclusive – if the SFC decides to pursue the civil route, it cannot subsequently commence criminal proceedings against the wrongdoer for the same market misconduct.
Adopting this conventional view, Tiger Asia argued that section 213 of the SFO is only intended to provide interim relief to support substantive proceedings via the MMT or criminal courts. Tiger Asia mounted a jurisdictional challenge against the SFC, seeking to strike out the SFC's attempt to obtain free-standing remedies under section 213 of the SFO without commencing any substantive proceedings in the MMT or criminal courts. Tiger Asia emphasized that the SFC cannot break the legislative confines of the dual enforcement regime by essentially seeking a third route of enforcement.
Whilst Tiger Asia succeeded at First Instance to strike out the SFC's claim, the Court of Final Appeal judgment confirmed that the SFC can use section 213 of the SFO as a third route of enforcement. Whilst criminal courts and the MMT can impose penalties in the general public interest to punish wrongdoers, section 213 on the other hand provides remedies for the benefit of parties injured by the impugned transactions. Therefore the third route of enforcement is a necessary addition to the SFC's arsenal because it gives the SFC the option to act not as a prosecutor in the general public interest but as protector of collective interests of victims of market misconduct.
The upshot of this decision is that the SFC will be able to seek swifter sanctions against those who commit market misconduct. The sanctions available to the SFC under the section 213 procedure can be severe. In Tiger Asia, the SFC sought to ban the hedge fund from dealing in Hong Kong indefinitely. Furthermore, the enforcement options available to the SFC are not mutually exclusive. Even if the SFC obtains remedies under section 213 of the SFO, the SFC can get a "second bite of the cherry" to subsequently pursue criminal proceedings.