A former Morgan Stanley managing director and investment banker in the firm's fixed-income group was yesterday found guilty of insider dealing by a Hong Kong district court in a case dating back to 2007. He was remanded in custody pending sentencing today.
Du Jun was found guilty of all 10 charges of insider dealing in HK$86 million ($11 million) worth of shares in Hong Kong-listed Citic Resources Holdings before and after an acquisition by the company of oil field assets in China that was announced on May 9, 2007. According to the press release issued by the Hong Kong Securities and Futures Commission (the securities regulator which investigated the case), Du bought a total of 26.7 million shares in Citic Resources on nine occasions between February and April 2007 when he was part of a Morgan Stanley team advising Citic Resources and was in possession of price sensitive information regarding the pending acquisition.
After the announcement of the deal, Du sold 13 million of the shares, realising a profit of HK$33.4 million.
The misconduct came to light when Morgan Stanley discovered the trades and reported them to the SFC. Shortly afterwards the firm also fired Du.
"The wrongdoing by a former employee of our firm was a violation of Morgan Stanley's values and policies," a spokesman for the investment bank said in a written comment last night. "We expect all of our employees to uphold the highest ethical standards. The conduct, which occurred in 2007, was identified by the firm and reported, and the employee was terminated."
According to media present at the trial, when delivering his verdict Judge Andrew Chan did however criticise Morgan Stanley for not adequately staffing its compliance team, and for poor communication between the bank's compliance team and its fixed-income group.
This is the tenth successful insider dealing case brought by the SFC since the first such conviction in July 2008 and arguably one of the most high-profile.
"Today's verdict underscores our dedication and commitment to protect ordinary investors from this type of misconduct and the SFC will continue to take on cases like this to ensure Hong Kong is protected from this kind of market misconduct," said Mark Steward, the SFC's executive director of enforcement.
During the course of the investigation, the SFC obtained an injunction order from the High Court to freeze HK$46.5 million of Du's liquid assets—the first time the SFC has asked for such an injunction during an investigation of insider dealing.
Aside from the insider dealing charges, Du was also convicted of counselling or procuring his wife to deal in Citic Resources shares in February 2007. His wife is not facing charges.