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The Court of First Instance today dismissed an application by two solicitors who sought to strike out proceedings brought against them by the Securities and Futures Commission (SFC) under section 213 of the Securities and Futures Ordinance (SFO) in December 2010 alleging insider dealing and fraud (Note 1).
The SFC’s allegations concern conduct in relation to two confidential deals which the two solicitors, Ms Young Bik Fung and Mr Lee Kwok Wa, became privy to as a result of their employment by two different law firms in Hong Kong (Note 2).
The first deal involved a proposed takeover of Hsinchu International Bank Company Limited (Hsinchu), a company listed on the Taiwan Stock Exchange, by Standard Chartered Bank (Standard Chartered). Shortly before the deal was announced, the defendants purchased shares in Hsinchu. The share buying was funded by Young, Lee and Lee’s two sisters who are also defendants. The SFC alleges that at the time Young was working on secondment within Standard Chartered on the proposed takeover.
The second deal involved a proposed privatization of Asia Satellite Telecommunications Holdings Limited (Asia Satellite) by CITIC Group and General Electric Capital Corp. Lee was working for a different law firm which had been engaged to advise CITIC Group on the proposed transaction. The SFC alleges Lee worked within the department of the law firm that was working on the deal.
On the morning before trading in Asia Satellite shares was to be suspended for the proposed privatization, Young and Lee’s two sisters began buying shares in Asia Satellite. The SFC alleges their trading accounted for 73% of the total trading on that day.
The SFC alleges the defendants, who made a total profit of $2.9 million from the two transactions, contravened:
- section 300 of the SFO which prohibits the use of fraudulent or deceptive schemes in securities transactions in relation to the Hsinchu matter; and
- section 291 of the SFO which prohibits insider dealing in relation to the trading in shares of Asia Satellite (Note 3).
The SFC is seeking injunctions and remedial orders under section 213 of the SFO.
The defendants argued that the Court of First Instance had no jurisdiction under section 213 of the SFO to seek court orders against them and that the SFC had no reasonable cause of action or the action was unlikely to succeed.
The Court of First Instance found that the arguments to strike out the proceedings were misconceived and dismissed the application. The case will proceed (Note 4).
Notes:
- SFC v Young Bik Fung, Lee Kwok Wa, Lee Siu Ying Patsy, Lee Siu Fan Stella (HCMP 2575/2010). The application to strike out the SFC’s proceedings was decided by the Hon Mr Justice Anthony Chan. Please also see the SFC’s press release dated 22 December 2010.
- Both Young and Lee were employed, at the relevant time, as solicitors by Slaughter & May and Linklaters respectively. They are no longer employed by these firms.
- The SFC is unable to allege that the Hsinchu trades constituted insider dealing as well because the prohibition on insider dealing in the SFO does not apply to shares traded on the Taiwan Stock Exchange.
- This case had been delayed because of similar jurisdictional arguments which were dismissed by the Court of Final Appeal earlier this year in SFC v Tiger Asia Management LLC & Ors [2013] HKCFA 38; [2013] 3 HKC 600; FACV13/2012 (10 May 2013) (see http://www.hklii.hk/eng/hk/cases/hkcfa/2013/38.html).
