First Criminal Case of Insider Dealing in HK

Though insider dealing has been made a criminal offence under S.291 of SFO since 2003, in the past years those cases were handled in a civil way via the IDT. However, the first criminal prosecution has recently happened in HK.

SFC has commenced criminal proceedings against five defendants alleging they have committed insider dealing offences, namely, Mr Ma Hon Yeung, Ms Lo Yuk Wah Ivy, Mr Ma Hon Kit Sammy, Ms Tso Kin Wah Cordelia and Mr Ma Chun Ho Ronald. They appeared at the Eastern Magistracy today on a total of 12 charges. The case was adjourned until 17 Mar 2008 to enable an application to be made by the Department of Justice to transfer the case to the District Court. This case will then be the first indictable prosecution for an offence under the SFO. The maximum penalty for insider dealing of 10 years jail and a fine of $10 million can only be imposed upon conviction by indictment.

The charges concern alleged trading in the shares of Egana Jewellery & Pearls Ltd ("Egana") prior to an announcement made to the market on 11 Jul 2006 about a proposal to privatise the company. Egana was the jewellery division of EganaGoldpfeil (Holdings) Ltd ("EganaGoldpfeil") with its business principally in luxury and fashion branded jewellery.

Between 1 Jun and 6 Jul 2006, trading in Egana's shares ranged between $1.35 and $1.61 with average daily turnover of 636,630. Trading in the shares of Egana and EganaGoldpfeil were suspended on 7 Jul 2006 pending an announcement. On 11 Jul 2006, Egana and EganaGoldpfeil made a joint announcement about a proposed privatisation of Egana. The proposal offered shareholders a choice of receiving $1.80 per share or 1 share of EganaGoldpfeil for every 1.5 Egana shares or a combination of both. Following the announcement on 11 Jul 2006 the share price closed at $1.84 with substantially increased turnover of 25 million shares. The privatisation proposal was approved by shareholders and by the Court and became effective on 23 Oct 2006. Egana was delisted on the following day.

Ma Hon Yeung ("Ma") joined BNP Paribas Peregrine Capital Ltd ("BNP") as a VP on 1 Jun 2006. BNP was involved in advising Egana on the deal. SFC alleges that:

• Knowing about the proposed privatisation before it was announced, Ma had counselled or procured Ivy and Sammy to trade in Egana shares.
• Ivy, Sammy, Ronald and Cordelia traded in Egana shares having information through Ma's connection to Egana about the proposed privatisation.

The offences are alleged to have occurred between 1 Jun 2006 and 6 Jul 2006 (being the day before the announcement of the proposed privatisation).

Let's see if this case could become a landmark case of sanctioning insider dealing in HK.