A former Citic Pacific employee was jailed for 15 months and fined over $1 million after being convicted of two counts of insider dealing in the company’s shares prior to a profit warning being issued in October 2008.
The sentence was handed down to Simon Chui Wing Nin, a former assistant director of finance at the firm, by Eastern Magistracy yesterday. He was convicted last month, as reported.
Chui was fined a total of $1,018,855 and ordered to pay investigation costs of $228,469 to the Securities and Futures Commission (SFC). The amount of the fine effectively disgorged the benefit earned by Chui from the trading loss he avoided of $1.36 million.
He was also disqualified from being a director of corporations in Hong Kong, including listed corporations, for three years.
The court heard that Chui was involved in assessing the impact of the fall in the Australian dollar in mid-2008 on a number of foreign exchange derivatives contracts, including 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 target redemption forward contracts were like accumulator contracts and required Citic Pacific to purchase a multiple amount of the Australian dollar if it fell below designated strike rates.
By late August 2008, the Aussie 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 that the firm faced a very substantial mark-to-market loss that would materially impact its financial position.
While in possession of this information and before it was generally available, Chui sold most of his shares in Citic Pacific.
On October 20, 2008, Citic Pacific announced a mark-to-market loss, at that point, of more than HK$14.7 billion, sending the share price down about 60%.
Mark Steward, SFC’s executive director of enforcement, said: “There is no excuse for this kind of blatant insider dealing. The SFC will continue to attack all forms of market misconduct to protect and enhance the quality of Hong Kong’s markets for the benefit of the investing public in Hong Kong and abroad.”