Hsinchu Bank was a listed company on the Stock Exchange of Taiwan in Sep 2006 and Asia Satellite was a listed company on SEHK in Feb 2007.
The court's decision is a landmark ruling on the interpretation of S.300 of the SFO which prohibits the use of fraudulent or deceptive schemes in transactions involving securities.
SFC started civil proceedings in the court against Eric Lee, Betty Young, Patsy Lee and Ms Stella Lee, both sisters of Eric Lee, in Dec 2010 under S.213 of the SFO and alleged the defendants made a total profit of $2.9 million in these transactions.
SFC alleged that, in relation to Hsinchu Bank transactions in Sep 2006:
- Betty Young obtained information about a tender offer for Hsinchu Bank shares while working as a lawyer seconded to a client of her employing law firm;
- the client she was seconded to intended to make the tender offer and she was working on the offer;
- the information about the offer was non-public, confidential and materially price sensitive;
- subsequently, Betty Young bought Hsinchu Bank shares and tipped off Eric Lee and his sisters to buy the shares before the announcement of the tender offer; and
- this amounted to fraud or deception under S.300 of the SFO because Betty Young owed duties to her employer and their client including the duty to refrain from using such information for personal gain.
SFC further alleged that, in relation to Asia Satellite transactions in Feb 2007:
- Eric Lee obtained information about the proposed privatization of Asia Satellite shares when the law firm he worked for advised on this transaction;
- that information was non-public, confidential and materially price sensitive;
- subsequently Eric Lee tipped off Betty Young and his sisters to buy Asia Satellite shares before the announcement of the proposed privatization; and
- this amounted to insider dealing under S.291 of the SFO.
The court found that these allegations were proven against Betty Young, Eric Lee and Patsy Lee, but there was not enough evidence to prove the allegations against Stella Lee. Nevertheless, the court may exercise its power under S.213 of the SFO against her to remove the illicit profit from her and restore the victims in the transactions.
Since Hsinchu Bank is not a HK listed company, SFC can't initiate legal proceedings based on the insider dealing provisions under the SFO, but it can now effectively make use of S.300.
