Ex-Morgan Stanley Manager Appeals Insider Trading Convict
Former Morgan Stanley Managing Director Du Jun yesterday appealed a Hong Kong insider trading conviction for which he was sentenced to seven years in prison, saying prosecutors didn’t prove he committed the crime.
“The prosecution failed to prove beyond a reasonable doubt that the defendant knew it was relevant information,” said his lawyer John Griffiths, referring to an e-mail Du received from Morgan Stanley colleagues before buying shares of Citic Resources Holdings Ltd. (1205)
Du is serving the longest jail sentence for the offense since the former British colony criminalized insider trading in 2003. District Court Judge Andrew Chan in 2009 found Du guilty of nine counts of the offense and one count of advising his wife to trade Hong Kong-listed Citic Resources, a Chinese oil and coal producer, in 2007.
Du’s lawyer argued today his client’s sentence was too heavy in comparison to sentences for professionals convicted of similar crimes. Court of Appeal Judge Michael Hartmann responded that bankers were known as “masters of the universe” before 2008.
“These people are entrusted on a daily basis with highly confidential information that could have major financial implications,” he said.
$3 Million Fine
Du, who was also fined HK$23.3 million ($3 million), bought shares of Citic Resources after learning of its plan to purchase a Chinese oilfield while helping the company sell bonds. The Beijing native sold half of the shares in July 2007 for a profit of about HK$33.4 million after the company announced the deal on May 9, according to prosecutors.
Griffiths told Hong Kong’s Court of Appeal yesterday that an acquisition in Kazakhstan, also announced on May 9, and the resumption of trading after a one-week suspension, contributed to the surge in Citic Resources shares. The lower court judge’s evaluation of the relevance of the information Du had from the e-mail was “fallacious,” Griffiths said.
Du worked for Morgan Stanley (MS) in Hong Kong from 2001 until May 2007, when he was fired. He returned to Hong Kong from Beijing in 2008 after HK$46.5 million of his assets in the city were frozen by the Securities and Futures Commission.
He was arrested at the airport on his return. Du had borrowed HK$50 million in margin financing from Morgan Stanley for his transactions, more than double his 2006 basic salary and bonus of HK$19 million, prosecutors said.
Judge Chan had also criticized the New York-based bank’s compliance system as “deficient.” Morgan Stanley wasn’t subjected to any penalties by the SFC.
“I think it’s fair to say that had he asked for permission and they said no, he wouldn’t have traded,” said Charlotte Draycott, a lawyer for the Department of Justice, referring today to Morgan Stanley’s internal controls. “But seeing as they said yes, he traded when he knew he shouldn’t have.”
The case is Hong Kong SAR v. Du Jun, CACC334/2009 in the Hong Kong’s Court of Appeal.
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