Tiger Asia Management LLC, which admitted in a U.S. settlement to illegally using inside information to trade Chinese bank stocks, lost a challenge to a Hong Kong regulator’s right to pursue it for the same offense.
Chief Justice Geoffrey Ma of Hong Kong’s Court of Final Appeal today dismissed Tiger Asia’s bid after hearing about two hours of arguments and without calling on the city’s Securities and Futures Commission to respond. He said written reasons would be handed down later.
The ruling confirms the regulator’s ability to sue parties it suspects of market misconduct independently of a criminal prosecution or a civil inquiry. The New York hedge-fund firm claimed such action by the SFC was an abuse of process and won an initial ruling in June 2011, which was overturned last year by an appeal judge.
SFC Enforcement chief Mark Steward said that the decision vindicates the regulator’s position and strategy. The power is a key part of its strategy “in bringing wrongdoers face to face with the real consequences of their misconduct,” he said in a November speech.
Alan Linning, a lawyer for Tiger Asia, declined to comment.
The hedge-fund firm, which has no employees or physical presence in Hong Kong, agreed to U.S. civil and criminal settlements of more than $60 million in December for using inside information received through private placements to sell short shares of China Construction Bank Corp. and Bank of China Ltd. The SFC in Hong Kong first accused the firm of the misconduct in 2009.
Tiger Asia was seeded by billionaire Julian Robertson and started in 2001. Founder Bill Hwang said in August that the fund would return all outside capital to investors. Shawn Pattison, a spokesman for Hwang, declined to comment on his business plans.
Robertson seeded a new Asia-focused fund in November, Tiger Pacific Capital LP, headed by former Tiger Asia employees, Run Ye, Junji Takegami and Hoyon Hwang.
The SFC’s attempts to pursue wrongdoers are constrained by Hong Kong’s double jeopardy law, which doesn’t allow both criminal and civil proceedings for the same offense. Criminal proceedings are also hampered by the fact many offenders aren’t based in Hong Kong. The regulator has no record of extraditing suspected financial criminals since its creation in 1989.
About 46 percent of cash equity and 25 percent of derivative trading turnover comes from overseas investors, according to the most recent Hong Kong stock exchange data.
The SFC used the power to sue Chinese fabric maker Hontex International Holdings Co. for compensation for investors who were misled by its listing prospectus. On the 13th day of the trial in June, the company settled the case and agreed to pay shareholders HK$1.03 billion ($132.7 million).
“The market as a whole, benefits from knowing there is now a mechanism to undo the consequences of false or misleading prospectuses,” Steward said in his November speech. The regulator has a string of other cases of alleged misconduct cases before the court, he added.
Today’s decision by the court demonstrates it is prepared to uphold the powers of regulators in the broadest terms possible, according to Gareth Hughes, a partner at Ashurst LLP in Hong Kong who isn’t involved in the case.
“It is a springboard for the SFC to test the boundaries of its powers in other areas,” he said.
The case is Securities and Futures Commission and Tiger Asia Management LLC, Sung Kook Hwang Bill, Raymond Park, William Tomita, FACV10/11/12/13 2012 in the Hong Kong Court of Final Appeal.