The Court of First Instance has ruled that it does not have jurisdiction under section 213 of the Securities and Futures Ordinance (Cap. 571) ("SFO") to make a declaration that Tiger Asia Management LLC ("Tiger Asia") engaged in insider trading contrary to section 291(5) of the SFO. The effect of the ruling is that the Securities and Futures Commission ("SFC") cannot seek final orders under section 213 of the SFO, including to impose a trading ban on Tiger Asia or to freeze its assets, without a prior determination by the Market Misconduct Tribunal ("MMT") or the criminal courts. The SFC has indicated that it intends to appeal the decision and therefore, the Court's jurisdiction under section 213 of the SFO may be clarified by the Court of Appeal.
In Securities and Futures Commission v Tiger Asia Management LLC (unrep., HCMP 1502 of 2009, 21 June 2011), the SFC alleged that New York-based hedge fund, Tiger Asia and three of its officers, contravened Hong Kong's insider dealing laws. In particular, the Commission alleged that Tiger Asia short sold shares in China Construction Bank and Bank of China whilst in possession of confidential and price sensitive information in relation to the placements of shares in the two Hong Kong-listed banks.
The SFC sought final orders including to freeze Tiger Asia's assets and to ban the fund from trading in Hong Kong-listed securities under section 213 of Part X of the SFO. Relief under the section is available "[w]here a person has contravened any of the relevant provisions…" or "[w]here it appears… to the Commission that any of the matters [including where a person has contravened any of the relevant provisions] has occurred, is occurring or may occur…" (sections 213(1)(a)(i)(A) and 213(1)(b) of the SFO). The SFC therefore sought a determination by the Court under section 213 of the SFO on whether or not the Defendants had contravened the insider trading provision, namely, section 291(5) of the SFO. The Defendants contended that the Court of First Instance did not have jurisdiction under section 213 of the SFO to so determine. Rather, the matter has to be determined either by the MMT under Part XIII of the SFO or by a court of competent criminal jurisdiction under Part XIV of the SFO.
Following a two-day hearing, Harris J concluded that the Court did not have jurisdiction under section 213 of the SFO to determine whether the Defendants contravened section 291(5) of the SFO. Harris J considered, inter alia, that there was no evidence that the purpose of Part X of the SFO was to introduce a third procedure, in addition to an inquiry by the MMT or criminal prosecution, to allow the SFC to seek a determination from the Court as to whether there had been a contravention of Part XIII or XIV. Parts XIII and XIV are to be determined exclusively in accordance with those two parts of the SFO within which certain safeguards are in place, such as the protection to the defendant against criminal prosecution where he or she is subject to MMT proceedings. Although the Court is not strictly prevented from making a declaration of criminality, it is unlikely that section 213 was intended to give the SFC the unfettered choice of seeking such declarations from the Court when to do so “would result in de facto declarations of contravention of the Ordinance”.
The SFC has indicated that it will appeal the decision of Harris J. The decision and any subsequent appeal are important as they impact on the scope of the SFC's statutory powers under section 213 of the SFO. We await the developments with interest and will issue updates when further information becomes available.