Former Fidelity Management & Research Co. portfolio manager George Stairs traded shares of Chaoda Modern Agriculture Holdings Ltd. (682) on inside information of a share placement, a Hong Kong tribunal found.
Chaoda Chairman Kwok Ho and Chief Financial Officer Andy Chan, who were also specified in the civil inquiry, didn’t break insider trading laws when they divulged the Chinese vegetable producer’s plans to issue shares on investor calls, according to the 135-page ruling by Hong Kong’s Market Misconduct Tribunal.
“It was not a coincidence that, on the very day on which he had received material price sensitive information from Kwok Ho and Andy Chan, George Stairs placed an order to sell a parcel of those shares,” the tribunal wrote in its report, noting that analysts at BlackRock Inc. (BLK) notified their compliance departments about the information.
The three-member tribunal, led by High Court Judge Michael Lunn, held hearings in February and March to investigate whether material non-public information was improperly disclosed on phone calls involving Kwok, Chan and U.S. institutional investors in 2009. Stairs took part in one of those calls and sold some of his Chaoda holdings before the placement, according to Hong Kong’s government.
Vincent Loporchio, a Boston-based spokesman for Fidelity, wrote in an e-mail yesterday that the company is reviewing the tribunal’s conclusions, and said the panel didn’t “indicate any criticism of Fidelity’s policies and procedures.”
The company said in February that it had concluded after an internal review that their employees hadn’t violated any laws or regulations. Stairs told the tribunal he believed the share- placement information was already public.
Kwok and Chan didn’t commit insider trading when they “deliberately and knowingly ignored the proper protocols for providing information” to Stairs, according to the tribunal. “Whatever were their purposes for disclosing the information to George Stairs, we are sure that it did not include the purpose that he use the information to deal in Chaoda shares.”
Stairs netted HK$1.98 million ($255,200) for his funds by selling Chaoda shares ahead of the announcement. He later bought more at a lower price in the offering, according to a government notice.
BlackRock employees who also participated in conference calls with Kwok and Chan in June 2009 reported the information to their compliance department “immediately” and were restricted from trading, the tribunal heard.
The panel also criticized Merrill Lynch Asia Pacific Ltd., which was competing with other banks for the share issue mandate and which arranged the investor calls, for failing to take into account the “very substantial risk” that price sensitive information would be divulged. No Merrill Lynch employees were targets of the inquiry.
Mark Tsang, a spokesman for Bank of America-Merrill Lynch, declined to comment on the ruling.
The civil tribunal inquiring into the allegations has the power to force the disgorgement of profits made or losses avoided. It can also ban individuals from dealing in any securities, and from serving as a director or manager of a corporation. A hearing will be held on May 21 to determine Stairs’ penalty, according to the Market Misconduct Tribunal’s website.
The ruling, dated April 26, was posted on the tribunal’s website.
Simon Shi, a spokesman at Chaoda, wasn’t available when a phone call was made to the company’s investor relations office.
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