Insider Dealer subject to "Life Sentence"

Last week SFC announced that it has banned Mr Steve Luk Ka Cheung (once a famous fund manager) from re-entering the industry for life following a Market Misconduct Tribunal (MMT) determination that Luk had engaged in market misconduct. Steve Luk's licence was revoked in November 2006.

MMT determined that Luk, a former vice-president and fund manager of JF Asset Management Ltd, and two other parties had engaged in insider dealing in respect of the shares of China Overseas Land and Investment Ltd (COLI). MMT made certain orders against Luk, including orders that he should not, without the leave of the court, take part in the management of any company and acquire, dispose of or otherwise deal in any securities for nine months.

During the period from 7 to 26 January 2004, Mr David Tsien Pak Cheong, then an equity salesman of JP Morgan Securities (Asia Pacific) Ltd, disclosed to Mr Edmond Leung Chi Keung and Luk relevant information in respect of negotiations between JP Morgan and COLI in relation to a top-up placement of the latter's shares. Leung and Luk then separately sold COLI shares held by funds they managed to avoid the loss to those funds in the value of those shares, flowing from what they believed would be a fall in the market price of COLI shares following disclosure of the relevant information to the market.

Let's have a look at the following remarks on Steve Luk extracted from MMT's report:

• In common with the other Specified Persons, Mr Steve Luk was a man of considerable experience in the financial services industry at the time of the commission of his acts of insider dealing. In 1990, he obtained an MBA degree from Columbia University. In 2004, he was a Vice-President of JFAM and manager of two of its funds, having been employed by that organisation for 14 years. At the time of the insider dealing one of the funds, JPM China Fund, held shares to a value of US$600 million whilst the other fund, JF Greater China Open Fund, held shares to the value of US$250 million. He was permitted to trade in the funds without requiring the permission of others. Clearly, Mr Steve Luk was a man in whom JFAM reposed considerable trust and who bore considerable responsibility. His insider dealing was a breach of that trust.
• Although Mr Steve Luk's acts of insider dealing were committed in a period of not much more than an hour on the afternoon of 26 January 2004, it is to be noted that, having placed the original order to sell COLI shares in the two funds that he managed, a little later he intervened to reduce the price limit at which they could be sold and placed a third sell order for the fund of a colleague. In all, he sold 9.1 million COLI shares in the three funds.
• The Tribunal accepts that Mr Steve Luk received no direct benefit of having succeeded in avoiding loss in the three funds by his sale of COLI shares. However, in so far as the two funds that he managed benefited from his market misconduct in avoiding loss, that was to be reflected in the assessment of his performance as a fund manager, measured by the funds outperforming the MSCI China Index, and ultimately in monetary terms in the bonus he received.

It is your judgement on whether the penalty for Steve Luk is too harsh or not, but definitely this case tells you again how a momentary slip (一念之差) can ruin one's life.