Fidelity’s Stairs Gets Hong Kong Securities Trading Ban
Former Fidelity Management & Research Co. portfolio manager George Stairs was banned from dealing securities in Hong Kong for two years for selling Chaoda Modern Agriculture Holdings Ltd. (682) shares using inside information.
The Hong Kong Market Misconduct Tribunal, which announced the ban today, didn’t impose a financial sanction on Stairs for the losses he avoided because the insider trading was executed on behalf of his funds. He remains a Fidelity employee and is no longer managing assets on behalf of funds or clients, according to Fidelity.
The action against Stairs compares with the 7.2 million-pound ($11.3 million) fine the U.K.’s Financial Services Authority slapped on U.S. hedge fund Greenlight Capital Inc. and its founder, David Einhorn, in January for insider trading. Like Einhorn, Stairs had argued that he didn’t agree to restrict himself from trading in exchange for material non-public information, and that he thought the information was already public knowledge.
“The government and the MMT’s hands are tied,” said Paul Li, a Hong Kong-based financial markets regulations lawyer at Simmons and Simmons LLP. “If Mr. Stairs did not gain personally their options are limited.”
The three-member Hong Kong tribunal, led by High Court Judge Michael Lunn, ruled on April 26 that Stairs received non-public information in June 2009 about a share placement from the Chinese vegetable producer’s Chairman Kwok Ho and Chief Financial Officer Andy Chan on a phone call arranged by Merrill Lynch. Stairs sold down his Chaoda holdings before the placement was announced, according to Hong Kong’s government.
‘Enforced Against Wrongdoers’
“Hong Kong’s securities laws will be enforced against wrongdoers wherever they are situated,” Mark Steward, head of enforcement at the Securities and Futures Commission, said in a statement. “No one, no matter where they are, should think they can breach Hong Kong’s securities laws with impunity.”
David Morrison, a lawyer for Stairs, didn’t immediately return phone and e-mail requests for comment on the sanction.
Stairs netted HK$1.98 million ($255,000) for his funds by selling Chaoda shares ahead of the announcement. No wrongdoing was found on the part of Fidelity and the firm isn’t liable to any disgorgement orders from Hong Kong authorities.
Didn’t ‘Knowingly Trade’
Vincent Loporchio, a Boston-based spokesman for Fidelity, said on May 20 the company respectfully disagrees with the Hong Kong tribunal’s conclusions regarding Stairs.
“He did not knowingly trade on non-public price sensitive information,” Loporchio said in an e-mail at the time. “Fidelity conducted a thorough internal review of this matter consistent with its strong protocols.”
The approximate loss avoided on behalf of shareholders was only 0.017 percent of the fund’s assets under management, Loporchio said.
The U.K.’s FSA fined Einhorn, along with his firm, more than $11 million for trading on non-public information received from a broker about a planned equity fundraising by Punch Taverns Plc. (PUB) The FSA said Einhorn traded within “minutes” of receiving the information.
BlackRock Inc. (BLK) 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.
“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.
The tribunal in Hong Kong that imposes “deterrent or deterrent-like orders on offenders” is an alternative to criminal prosecution, according to Ashley Alder, chief executive officer of the SFC. Proceedings are brought to the tribunal when a criminal prosecution isn’t possible.
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