Former Morgan Stanley managing director Du Jun was ordered to pay HK$23.9 million ($3.1 million) to investors who sold him shares in 2007, for which he was jailed for trading with inside information.
Hong Kong High Court Judge Peter Ng’s order yesterday benefits about 300 investors in Citic Resources Holdings Ltd. (1205), the Securities and Futures Commission said in a statement. The payments represent the profit they could have made had the inside information been known.
The restoration orders are the first by a Hong Kong court in an insider dealing case. Du, who bought shares of the Chinese commodities trader after learning of a plan to purchase an oilfield while he was helping it sell bonds, was convicted in 2009. The SFC last year won a similar court order using the same legal provision known as section 213 on behalf of investors in a flawed initial public offering.
“We expect to see more frequent use by the SFC of section 213 to achieve compensation for investors in a variety of situations in which there has been market misconduct in the broadest sense,” said Martin Rogers, a Davis Polk & Wardwell LLP disputes partner in Hong Kong who wasn’t involved in the case. The legal provision allows the commission to sue and seek remedies on behalf of investors.
A Beijing native, Du worked for Morgan Stanley (MS:US) in Hong Kong from 2001 until May 2007 when he was fired. He was arrested on his return to Hong Kong from Beijing in 2008 after the SFC froze HK$46.5 million of his assets.
An appeal court last year dismissed Du’s arguments that the prosecution failed to prove he committed a crime. It cut his jail term to six years from seven, saying Du didn’t set up secret accounts for his trading.
Du’s lawyer from Chong & Partners didn’t return a call for comment on yesterday’s ruling.
The affected Citic Resources investors wouldn’t have sold their shares to Du had they known he was engaged in illegal insider dealing and certainly not at the same price, said SFC Executive Director of Enforcement Mark Steward.
“This case sends a clear message that the consequences of wrongdoing, including the costs of restoration or remediation,” should be met by wrongdoers, he said.
The SFC’s HK$1.03 billion settlement in 2012 with Hontex International Holdings Co., which it accused of misleading investors in its listing prospectus, saw the company offer to repurchase shares from about 7,700 shareholders.
The case is Securities and Futures Commission v. Du Jun, HCMP1407/2007 in the Hong Kong Court of First Instance.
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