The Court of First Instance recently delivered a judgment on 9 November 2021 finding three individuals had engaged in insider dealing in the shares of TeleEye Holdings Limited (“TeleEye”) in 2016 reaping a total profit of HK$12.9 million.
In this action, the Securities and Futures Commission (“SFC”) commenced civil proceedings against the three individuals in September 2016 under Section 213 of the Securities and Futures Ordinance (Cap, 571)(“SFO”) for a declaration that the three individuals engaged in insider dealing in contravention of section 291 and/or section 270 of the SFO and for an order that they be jointly liable to disgorge the profits made together.
The case alleges that between February and April 2016, the 1st Defendant, Ms. Yik Fong, was intimately involved in the negotiations on a potential acquisition of a majority stake in TeleEye, a company listed on the GEM Board of the Stock Exchange of Hong Kong (the “Takeover”).
From 1 March 2016 to 12 April 2016, 1st Defendant placed orders to purchase shares in TeleEye through the 2nd Defendant’s securities accounts, whilst the 3rd Defendant placed orders to purchase TeleEye shares through his own securities accounts.
The Takeover was eventually announced on 14 April 2016, subsequently to which from 15 April 2016 to 20 May 2016, the 1st Defendant sold some of her TeleEye Shares at a profit.
In April 2016, the SFC began to investigate the three individuals’ dealings in TeleEye and conducted searches in the business premises and homes of the individuals. Notices were issued to various persons under section 183 of the SFO throughout from 2016 to 2018.
Shortly after the investigation had commenced, the 1st Defendant left Hong Kong and began reducing assets in her accounts in Hong Kong. As for the 2nd and 3rd Defendants, they had failed to attend any interview with the SFC despite repeated invitations. As a result, the SFC has also sought injunctions over the Defendants’ assets in Hong Kong.
In delivering the ruling, the court is satisfied that it is desirable to grant the orders sought by the SFC to remove the illicit profits involved in the impugned transactions.
This action represents a very classic case of contravention of the insider dealing provisions under Section 270 and/or Section 291 of the SFO. The 1st Defendant was a connected person to TeleEye, had information on which she knew was insider information in relation to TeleEye. Whilst the 2nd and 3rd Defendants each had information which they knew to be insider information of TeleEye and had reasonable cause to believe the information came from a person connected with TeleEye.
We would take this opportunity to remind the reader that there are serious consequences to insider dealing and for failing to respond to SFC’s enquiries and investigation. Contact us if you need assistance with ascertaining your obligations under the SFO and/or if you are subject to an SFC investigation.