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Market Misconduct Tribunal : what constitutes “relevant information” for insider trading

 
In the latest case, MMT found that the specific information would not have “affected share price materially”. (Click for SFC press release; MMT report)

Alleged events were the listed company’s experiencing tightening of bank facilities; a series of loans by a private investor (totaling HK$ 19.2m) at high interest rate (3-5%); and subsequent defaults.

After hearing experts from both sides, MMT found that the information would not have affected the share price materially, hence not constituting “relevant information”.

The company’s dire financial situation was publicly known given its poor annual results, interim results, and media reports on past bank defaults.

Company share price already hit the lowest level. Media news on past bank defaults did not in fact have any adverse impact on the share price.

The relatively small loan size in question, even with high interest and the failure to repay them were therefore superfluous information.

The key fact — the company was being evaluated by investors as a “shell company”.

What you should know/watch out for:

• An interesting case; illustrates how to determine if specific information would “affect share price materially”
• Significance of considering external (market) evidence
• Such determination is not just a legal issue
• Also useful for “inside information” disclosure determination; as “inside information” is defined in the same way as “relevant information” under the Securities and Futures Ordinance (“SFO”)

In another case, MMT found that Mr Andrew Left of Citron Research disclosed false or misleading information inducing transactions and so engaged in market misconduct under the SFO (s.277) following proceedings brought by the SFC. (Click for SFC press release; MMT report).

MMT found that the accused used sensationalist language in his report that the listed company concerned was insolvent and engaged in accounting fraud. It found these allegations were false and misleading and likely to alarm ordinary investors.

The accused had made these allegations recklessly or negligently, with no understanding of applicable Hong Kong accounting standards and without checking them with an accounting expert or seeking comment from the company concerned.

What you should know/watch out for:

• SFC will bring actions against publishers of research reports if allegations contained were found to be false and misleading materially
• Listed companies must also be prepared to issue clarification statements in a timely manner
• HKEX trading halts implications –read our Dec 15, April 16 updates

SFC published its quarterly report for Q2 2016.

What you should know/watch out for:

• SFC conducted a daily review of corporate announcements under the “inside information disclosure” regime during the quarter
• Follow-up actions include exercising its power to compel production of listed company records for further investigation, and enquiries with a number of companies
• SFC successfully obtained from the court, “director disqualification orders” based on breach of directors’ duties (Click our May 16 update for the China Best Group case)
• Disclosure of inside information is an enforcement focus (Click our April 16 update for the Yorkey case).