Legal update: SFC fines company secretary for insider dealing

According to a recent press release issued by the Securities and Futures Commission (the “SFC”) on 11 January 2021, Mr. Chow Chiu Chi, the company secretary of China Automation Group Limited (“China Automation”), a company listed on the Main Board of The Stock Exchange of Hong Kong Limited (the “SEHK”), was sentenced by the Eastern Magistrates’ Court to 45 days’ imprisonment and ordered to pay a fine of HK$45,000 and the SFC’s investigation costs of HK$37,029.51 after being convicted of insider dealing in the shares of China Automation.

After becoming aware of a letter in relation to a possible general offer and being instructed to arrange suspension of trading, Chow purchased a total of 534,000 China Automation shares through his wife’s securities account before the trading suspension took place.  Chow subsequently sold some of the shares and made a profit of HK$7,417.  The notional profit of the remaining unsold shares was HK$36,865.

Broadly speaking, insider dealing occurs when a person deals, or counsels or procures another person to deal, in the listed securities of a corporation (or its related corporation) or their derivatives when he has information which he knows is inside information.  Section 291 of the Securities and Futures Ordinance (Cap. 571) set out seven occasions of insider dealing in relation to a listed corporation.

Inside information must possess three elements:

• It must be specific information that is about (i) the corporation; (ii) its shareholder or officer; or (iii) its listed securities or their derivatives;

• It is not generally known to the persons who are accustomed or would be likely to deal in the listed securities of the corporation; and

• It would if generally known to such persons be likely to materially affect the price of the listed securities.

A person who commits an offence of insider dealing is a liable to a maximum fine of HK$10,000,000 and imprisonment for 10 years.  In addition, the court may make the following orders in respect of such convicted person:

1. Disqualification order – the person shall not be or continue to be a director, liquidator, or receiver or manager of the property or business, of a listed or specified corporation or be concerned or take part in the management of a listed or specified corporation for a period not exceeding 5 years;

• Cold shoulder order – the person shall not acquire, dispose of or otherwise deal in any securities, futures contract or leveraged foreign exchange contract, or an interest in any securities, futures contract, leveraged foreign exchange contract or collective investment scheme for a period not exceeding 5 years;

• Disciplinary referral order – any body which may take disciplinary action against the person as one of its members be recommended to take disciplinary action against the person.

Individuals and organisations that are aware of “inside information” therefore face serious consequences including custodial prison sentences, if they participate in insider dealing.

Russell Bennett / Agnes Lau

If you would like to discuss any of the matters raised in this article, please contact:

Russell Bennett
Partner | E-mail

Edmond Leung
Partner | E-mail

Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.