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The Eastern Magistrates’ Court today sentenced Mr Au-Yeung Siu Pang, a former group finance manager of China CBM Group Company Limited (China CBM), to four months of imprisonment and fined him $120,000 after he was convicted of insider dealing in China CBM shares in a prosecution brought by the Securities and Futures Commission (SFC) (Note 1).
The SFC’s investigation found that, by around 27 March 2012, Au-Yeung, who was involved in the audit process related to China CBM’s financial results for the year ended 31 December 2011, became aware of two pieces of information relating to the company which was not yet disclosed to the public at the time, namely, (i) China CBM suffered an unaudited loss of about RMB 52 million in 2011 and (ii) China CBM was at the risk of having trading in its shares suspended because it could not resolve all outstanding audit issues before 30 March 2012 for the company’s 2011 annual results to be published on time (Information).
Au-Yeung, who was in possession of the Information, counselled or procured his father to sell 500,000 China CBM shares at $0.44 per share on 28 March 2012. Au-Yeung himself also sold 600,000 China CBM shares at $0.40 per share on the following day (Note 2).
On 30 March 2012, China CBM announced that it was unable to prepare its audited results in time and trading of China CBM shares on the Growth Enterprise Market (GEM) of The Stock Exchange of Hong Kong was suspended on the same day. China CBM did not publish its audited results for 2011 until 3 October 2012, and the audited results disclosed a loss of about RMB 49 million.
On 4 October 2012, trading in China CBM shares resumed. The share price of China CBM dropped 20 per cent to $0.26 from the last traded closing price of $0.325 before trading suspension.
The SFC alleged that the resulting notional losses avoided by Au-Yeung and via his father were $84,000 and $90,000, respectively.
In reaching the verdict, the Court found that:
- the Information constituted “relevant information” as defined in the Securities and Futures Ordinance (SFO) (Note 3);
- Au-Yeung, being a person connected with China CBM, knew the information constituted “relevant information” but still dealt in, and counselled and procured his father to deal in, China CBM shares whilst in possession of such relevant information; and
- Au-Yeung’s claim that the sale of China CBM shares at the material time were wholly unconnected with the “relevant information” was incredible.
The Court also ordered Au-Yeung to pay for the SFC’s investigation costs in the sum of $33,365.
The Court granted Au-Yeung’s application for bail pending his appeal against his conviction and sentence.
Notes:
- The Court convicted Au-Yeung of two insider dealing offences under section 291 of the SFO on 12 February 2019. The four months of imprisonment comprises three months of imprisonment for each count of offence with two months of imprisonment for the second count running concurrently with the first count.
- The shares of China CBM sold by Au-Yeung’s father on 28 March 2012 were beneficially owned by Au-Yeung but held in his father’s securities account.
- Under section 285 of the SFO applicable at the material time, “relevant information” means specific information that is about the corporation and is not generally known to the person who are accustomed or would be likely to deal in the listed securities of the corporation but would if generally known to them be likely to materially affect the price of the listed securities. The SFO has been amended since 1 January 2013. The term “relevant information” has been changed to “inside information”. The definition and the constituent elements remain the same.
- Please see the SFC’s press releases dated 7 September 2017 and 8 December 2017.
