Hong Kong hedgie jailed for insider dealing

Ryan Fong Yen-hwung, a former portfolio manager at Hong Kong hedge fund HSZ (Hong Kong) Limited, was sentenced yesterday to 12 months in jail and fined nearly HK$1.4 million ($179,000) for insider dealing.

The District Court also sentenced a former director of investment banking at CLSA Equity Capital Markets, Allen Lam Kar-fai, to six months' imprisonment and a fine of HK$69,000 ($8,846).

The sums are equivalent to those gained by illegal insider dealing, according to deputy district judge Eddie Yip.

HSZ officials in Hong Kong could not be reached for comment, as the announcement was made by the Hong Kong Securities & Exchange Commission after office hours. No one picked up the firm's Hong Kong number when rung. AsianInvestor did call the firm's office in the British Virgin Islands where a man declined to comment, saying the BVI office had nothing to do with operations in Hong Kong.

The case dates back to 2005, when CLSA was acting as financial advisor for JCDecaux Pearl & Dean in its proposed acquisition of 73.38% of Media Partners, a company that has since gone private. The HK$1.141 per share offer was well above the prevailing market share price of Media Partners.

An investigation by the SFC found that as a senior officer at CLSA, Lam gained access to the confidential, price-sensitive information about the takeover. He then tipped off Fong before the deal was announced in public.

Fong used the information to purchase, for himself as well as for the HSZ fund he managed, a total of 10.6 million shares of Media Partners at prices ranging from HK$0.6 to HK$0.83 over three months in 2005; when takeover was announced in September of that year, Fong sold those shares at prices above HK$1, eventually netting a profit of HK$3.39 million for the fund and over HK$1 million for himself.

HSZ has been active in Zurich and Hong Kong since 1994 as a licensed asset manager and securities advisor. According to its website, it is 80% owned by Hong Kong-based Swiss national Hans-Rudolf Schmid. Its flagship HSZ China Fund invests in listed mid-cap stocks. The firm also advises institutional and high-net-worth clients on special situations.

HSBC Private Bank (Suisse) in Geneva and Ergo, a subsidiary of Munich Re, each own 10% of HSZ Limited in BVI and HSZ (Hong Kong) Limited.

Fong and Lam mark the eighth and ninth people to be convicted in relation to insider dealing following an SFC investigation in the past 12 months. This is the third court case to result in jail time as well. "This was a serious case involving cover-up tactics and code words to disguise the inside information," says Mark Steward, the SFC's executive director of enforcement, in a statement.