Simon Chui Wing Nin, a former assistant director of finance at Citic Pacific, was convicted on Friday of insider dealing in the Hong Kong conglomerate’s shares prior to a profit warning issued in 2008.
Chui was found guilty following an eight-day trial in the Eastern Magistracy. He had pleaded not guilty to two charges. The case was adjourned to November 27 for sentencing.
The action reflects the hard line taken by Hong Kong's Securities and Futures Commission against market abuse and manipulation, with a marked rise in the number of cases brought in the past year or so.
The court heard Chui was involved in assessing the impact of the fall in the Australian dollar on a number of foreign exchange derivatives contracts. These included some target-redemption forward contracts in Australian dollars that Citic Pacific had entered into to hedge its position in funding an Australian mining subsidiary.
The instruments were like accumulator contracts and required Citic Pacific to buy a multiple amount of Australian dollars if it fell below designated strike rates.
By late August 2008, the Australian dollar had fallen significantly against the designated strike prices in the contracts. Chui was involved in calculating the financial impact on Citic Pacific and knew the company faced a very substantial mark-to-market (MtM) loss that would materially impact the company’s financial position.
While in possession of this information and before it was generally available, Chui sold most of his shares in Citic Pacific, avoiding an alleged notional loss of about HK$1.36 million.
On October 20, 2008, Citic Pacific announced an MtM loss, as at that point, of over HK$14.7 billion, and its share price fell by around 60%.
Mark Steward, executive director of enforcement at the SFC, says: “Chui knew he held privileged information that the market could not even imagine could be the case. Dishonestly, he took full advantage of it and sold almost his entire holdings. This was blatant insider dealing.”
Chui was granted bail and ordered to surrender all travel documents and not to leave Hong Kong pending sentencing in late November.