The first-ever SFO offence to be tried by a jury in the CFI emphasises the SFC’s commitment to prosecuting market misconduct through various enforcement powers.
By Dominic Geiser, Truman Mak, Evangeline Tsui, and Charlotte Wong
The Hong Kong Court of First Instance (CFI) has convicted three individuals of conspiracy to carry out false trading in the shares of a listed company, Ching Lee Holdings Limited (CLHL). This is the first time that an offence under the Securities and Futures Ordinance (SFO) has been tried by a jury in the CFI.
Background
In August 2020, the Securities and Futures Commission (SFC) commenced criminal proceedings against three individuals, Ms Sit Yi Ki, Ms Lam Wing Ki, and Mr Tam Cheuk Hang (Individuals), and their co-conspirators for conspiring to commit false trading in the shares of CLHL, contrary to Sections 295 and 303 of the SFO and Section 159A of the Crimes Ordinance.
As the SFC can only prosecute offences under the SFO in the Magistrate Court (where lower penalties are imposed), the case was referred to the Department of Justice and committed to the CFI for trial by jury, making it the first criminal prosecution for an offence under the SFO in the CFI.
The prosecution arose from the SFC’s investigations, which revealed that the Individuals conspired with others to manipulate transactions among the securities accounts under their control in order to create a false appearance of active trading and an artificial increase in trading volume for the CLHL shares. The SFC found that the Individuals and their co-conspirators planned the manipulative trading scheme before the listing of CLHL on 29 March 2016. The manipulative trading lasted for more than five months from March to September 2016, and netted illicit profits of over HK$124 million.
Outcome of the Criminal Proceedings
Following a 22-day trial, the nine-member jury found the Individuals guilty of conspiracy to commit false trading. The case has been adjourned for sentencing and the Individuals are meanwhile remanded in custody, after the judge refused their applications for bail.
The remaining two co-conspirators to the manipulative trading scheme left Hong Kong after the SFC had commenced investigations against them. The SFC has since obtained arrest warrants against them.
Parallel Civil Proceedings
In parallel to the criminal proceedings, the SFC also commenced civil proceedings in July 2019 under Section 213 of the SFO against 20 individuals and corporate entities suspected of involvement in the manipulation of the CLHL shares. The SFC was successful in obtaining an urgent interim freezing injunction in respect of HK$124.9 million held by 15 local and overseas entities. The purpose of the freezing injunction was to ensure that sufficient assets would be available to meet any restoration order that the court may eventually impose to compensate those who had been affected by and suffered loss as a result of the manipulative trading scheme.
Comment
This case is significant, not least because it is the first-ever case of criminal prosecution for an offence under the SFO to be tried by jury in the CFI. The case also underscores the SFC’s commitment to combat all forms of market misconduct through the use of different enforcement powers available to it, including through civil and criminal proceedings, and demonstrates the SFC’s assertiveness in prosecuting market misconduct.
As noted by the SFC’s Executive Director of Enforcement, the outcome of these proceedings sends a clear deterrent message to participants in the Hong Kong securities market — that any attempts to abuse the market for personal gains will be heavily scrutinised by the SFC and met with serious legal ramifications.