Ex-Morgan Stanley director ordered to pay $3.1 million
A former managing director of Morgan Stanley Asia will have to pay HK$23.9 million ($3.1 million) to 297 investors as a result of his insider dealing in Hong Kong-listed shares of Citic Resources Holdings.
These restoration orders – the first made by the court in a case of insider dealing – were made yesterday and complete civil proceedings started by Hong Kong’s Securities and Futures Commission against Du in July 2007.
The proceedings had been delayed pending the completion of parallel criminal proceedings against Du, which ended when he withdrew an application seeking to appeal his convictions and sentence for insider dealing in the Court of Final Appeal.
On nine occasions between February 15 and April 30, 2007, Du had bought a total of 26.7 million shares of Citic Resources at a cost of HK$86 million. At that time he was part of the Morgan Stanley team involved in advising Citic Resources and possessed information not known to the market.
The SFC’s executive director of enforcement, Mark Steward, says: “The effect of today’s orders will be to restore investors who transacted with Du to their pre-transaction positions, resolving issues first raised by the SFC in July 2007.
“The 297 investors had no means to detect they were dealing with Du, who was engaged in illegal insider dealing,” he adds. “If they had known, they would not have sold their shares to him and certainly not at the same price.
Under the restoration orders made by the court yesterday, the SFC will notify Citic Resources, Morgan Stanley Asia and all 297 investors of the orders. Unless there is any valid objection, Du will be required to pay the investors a total of HK$23,964,440.
The payment represents the difference between the actual price at which the affected investors sold the Citic Resources shares to Du and the price at which the investors could have sold the shares had the price-sensitive information concerning Citic Resources been made known to the market at the time (as assessed by expert evidence).
Du will also pay the SFC’s legal costs and the fees of the court appointed administrators.
He had been jailed on September 18, 2009 for seven years and fined HK$23,324,117 after being convicted on 10 counts of insider dealing following a trial in the District Court. Du originally appealed both his convictions and the sentence to the Court of Appeal.
On September 20, 2012, the Court of Appeal had upheld all insider dealing convictions against Du, but reduced his term of imprisonment from seven years to six and lowered the fine to HK$1.69 million.
In reducing the fine, the Court of Appeal had held that the effect of the fine was to deprive Du’s trading counterparties of the amounts which might be available to them in the proceedings under section 213 of the SFO and thus to defeat the “laudable objectives” of those proceedings.