Insider Dealing Investigation

Recently SFC published two interesting cases about its insider dealing investigation, which indicate how the market practitioners are keen on challenging SFC's extensive powers of investigation under SFO.

Case 1

SFC obtained an interim injunction to freeze the disposal of about $46m by a person "A" (name suppressed by court order) who is under SFC's investigation for suspected insider dealing. HK$46m is the potential financial penalty calculated by SFC.

"A" bought shares of CITIC Resources Holdings (listed in HK) and Chinatrust Financial Holdings (listed in Taiwan) when he was working in HK for a SFC licensed firm which held confidential information concerning the shares. Accordingly, SFC commenced the investigation.

SFC applied for the interim injunction because of fears that "A" is likely to transfer his assets out of HK which would frustrate any financial penalty imposed on insider dealing, based the following concerns:

• Neither "A" nor his wife are employed an longer in HK;
• "A" told SFC that he is currently residing with his parents in a military residence in Beijing (he has been out of HK since July 2007);
• "A" had been trying to transfer or sell his liquid assets and refused to enter into any volunatry arrangements concerning his assets pending completion of the investigation.

"A" applied to the High Court to dismiss or vary the interim injunction but was rejected.

Case 2

This one is also about "A" in Case 1. "A" applied to the High Court to dismiss a search warrant obtained by SFC to search the residential address of "A" and seize some documents. "A" argued that the search warrant was too board and that SFC was obliged to provide "A" with notice of the investigation before executing the search warrant. The judge rejected both arguments.