Chaoda Modern Agriculture Holdings Ltd.’s Chairman Kwok Ho, Chief Financial Officer Andy Chan and Fidelity Management’s George Stairs were accused by Hong Kong’s financial secretary of insider trading.
The government alleges Kwok and Chan told Stairs about a June 2009 share placement three days before it was publicly announced, and the fund manager traded profitably as a result, according to a notice released by Hong Kong’s Market Misconduct Tribunal yesterday.
While insider trading can be punished by 10 years in prison and a HK$10 million ($1.3 million) fine in a criminal court in Hong Kong, the tribunal hearing this civil case only has the power to disgorge profits made or losses avoided. It can also ban individuals from being a director or manager of a corporation, and from dealing in any securities.
“All insider dealing cases are made on the facts,” said Simon Clarke, a partner at law firm Allen & Overy LLP in Hong Kong when asked if the city’s regulators are stepping up enforcement against insider trading.
The portfolio manager at Fidelity Management & Research Company allegedly netted HK$1.98 million on behalf of the funds that he managed by selling 374,000 shares prior to the placement and then buying 630,000 shares at a lower price as part of the stock sale.
Other institutional investors told about the Chaoda placement were Janus Capital Management, Wellington Management Company LLP and BlackRock, according to the notice, signed by Hong Kong Financial Secretary John Tsang and dated July 25. The tribunal is expected to take up the matter again on Jan. 30.
‘No Laws Violated’
Boston-based Fidelity Investments conducted a thorough internal review of the matter in 2009 and believes that Stairs didn’t violate any laws or regulations, according to spokesman Vincent Loporchio.
“He continues to be an employee in good standing,” Loporchio said.
Rimsky Yuen, a lawyer for Kwok, and Graham Harris, a lawyer for Andy Chan, didn’t comment on the case after the proceedings.
Jane Ingalls, a spokeswoman for Janus, said no one at the firm acted on information from the call.
“A Janus analyst who was on the call was concerned that material non-public information was disclosed and reported it immediately to Janus’s compliance department,” Ingalls said in a telephone interview. “Trading in the stock was restricted immediately after the call.”
Chaoda’s shares slumped 27 percent and were suspended on Sept. 26 after the misconduct proceedings were first reported. Eric Yip of Christensen, which handles investor relations for the Chinese food producer, didn’t respond to a request for comment yesterday.
Tribunal chairman Michael Lunn said he returned to Hong Kong yesterday afternoon to convene the hearing.
Founded in 1994 by Kwok, Chaoda first listed in Hong Kong in 2000. Kwok, 55, is a member of the Chinese People’s Political Consultative Conference, China’s top political advisory body, and has a 19.6 percent stake in the company, according to data compiled by Bloomberg.
Chaoda’s market value has been cut by HK$11.9 billion since Next Magazine alleged in a May 26 report that it exaggerated its farmland, which was denied by the company.
Chaoda grows 150 types of crops at 31 production bases across 13 Chinese provinces, according to its website. The company employs 23,000 people and owns over 44,282 hectares of farmland.
While the misconduct case is unrelated to previous media reports about the company’s operations, there are still questions about its business, according to Felix Fok, a research partner at Ji-Asia Research Ltd.
“There’s still a dark cloud hanging over them and investor confidence probably won’t recover soon.”