SDI Breach

In an article SDI breaches go dark at SFC dated 6 October 2009, David Webb voiced out that SFC has quietly stopped disclosing details of successful prosecutions for breaches of the securities disclosure-of-interests (SDI) provisions of SFO, including the name of the offender and the company whose shares are involved. Probably "alerted" by this article, SFC has recently resumed the practice of disclosing prosecution for SDI breaches.

On 26 November 2009, SFC announced that the High Court has dismissed an appeal by Mr Liu Su Ke against his conviction in June 2009 for failing to disclose his interest in shares in Warderly International Holdings Ltd (607.hk). Liu had earlier appealed against his conviction on two counts of failing to notify both SEHK and Warderly within three business days of becoming aware that he had acquired an interest in 231.8 million Warderly shares. Liu was convicted on 2 June 2009 in Eastern Magistracy on two summonses and fined the sum of $5,000 in respect of each summons.

On 28 December 2006 Liu received, from Mr Yeung Kui Wong, the chairman and an executive director of Warderly at the time, a deposit of certificates for 231.8 million Warderly shares together with share transfer documents as security for a loan of $6 million to a subsidiary of Warderly. As part of the arrangement, Liu obtained an irrevocable right to sell the shares to the extent of any failure by the subsidiary to repay the loan. On that basis, SFC contended and the Court found that Liu acquired a notifiable interest in the shares which he failed to disclose within three business days after becoming aware of his interest as required under SFO. Accordingly, the judge has dismissed the appeal and upheld the convictions.

In delivering the judgement, the judge considers a number of important legal issues concerning the enforcement of the obligation to disclose notifiable interests in listed securities including whether the absence of a reasonable excuse for not disclosing is an element of the offence, whether the offence is one of strict liability and the presumption of innocence.

SFC has successfully prosecuted 70 charges of failing to disclose a notifiable interest or change of interest so far this financial year against 11 individuals.