EFFECTS OF MARKET MISCONDUCT
THE MARKET MISCONDUCT TRIBUNAL ('MMT')
Part XIII of the SFO extends the civil market misconduct
regime to cover all types of market misconduct, not just
insider dealing as was previously the case. The MMT, which
replaces the IDT, is chaired by a judge assisted by two
members and a presenting officer appointed by the Secretary
for Justice conducts proceedings. Like the IDT it is inquisitorial
and is entitled to direct that the SFC carry out further
investigations and report its findings to the MMT. It differs
from the IDT in that:
-
the sanctions available to it are different from those
available to the IDT; and
-
the role of the presenting officer has been clarified.
Under the SFO the presenting officer is a lawyer whose role
is to present evidence to the MMT. The intention is that
he should be more like a prosecuting counsel, rather than
a counsel assisting the tribunal as was the case with the
IDT and that he should have more independence.
There are detailed provisions in the SFO governing the composition
of and procedures to be followed by the MMT.
Proceedings of the MMT
The Financial Secretary may under Section 252 institute
proceedings before the MMT in respect of any suspected market
misconduct following a report by the SFC or a referral from
the Secretary for Justice by giving notice in writing to
the MMT setting out the terms of reference for the proceedings.
The main purpose of proceedings is to determine:
-
whether any market misconduct has taken place;
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the identity of every person involved in the market
misconduct; and
-
the amount of any profit gained or loss avoided as a
result of the market misconduct.
The MMT may identify a person as having engaged in market
misconduct if:
-
he has perpetrated any market misconduct;
-
the market misconduct was perpetrated by a corporation
of which he is an officer with his consent or connivance;
or
-
another person engaged in market misconduct and he assisted
or connived with that person in the perpetration of the
market misconduct, knowing that such conduct constitutes
or might constitute market misconduct.
The MMT makes its findings on the civil standard of proof.
It needs therefore to be satisfied that a person has engaged
in market misconduct on the balance of probabilities (rather
than beyond reasonable doubt which is the criminal standard
of proof). However, like the IDT, the MMT has powers to
receive any evidence, whether or not such evidence would
be admissible in civil or criminal proceedings. It also
has wide powers to compel the giving of evidence and to
prevent the publication of information about the evidence
the MMT receives. Significantly, a person is not excused
from complying with a requirement of the MMT to give evidence
on the ground that to do so might incriminate him (Section
253(4)) and such compelled self-incriminatory evidence may
be considered by the MMT.
Orders of the MMT
At the end of any proceedings, the MMT may under Section
257(1) impose the following sanctions on any person found
to have committed market misconduct:
-
a disqualification order 每 that a person shall
not, without the leave of the Court of First Instance, be
or continue to be a director, liquidator, or receiver or
manager of the property or business, of a listed corporation
or any other specified corporation or in any way, whether
directly or indirectly, be concerned or take part in the
management of a listed corporation or other specified corporation
for up to 5 years;
-
a cold shoulder order 每 that a person shall
not, without the leave of the Court of First Instance, in
Hong Kong, directly or indirectly, deal in any securities,
futures contract or leveraged foreign exchange contract,
or an interest in any of them or a collective investment
scheme for up to 5 years;
-
a cease and desist order 每 that the person
must not again engage in any specified form of market misconduct;
-
a disgorgement order 每 that the person pay
to the Government an amount up to the amount of any profit
gained or loss avoided as a result of the market misconduct;
-
Government costs order 每 that the person pay
to the Government its costs and expenses in relation to
the proceedings and any investigation;
-
SFC costs order 每 that the person pay the SFC's
costs and expenses in relation to any investigation; and
-
disciplinary referral order 每 that any body
which may take disciplinary action against the person as
one of its members be recommended to take such action against
him.
The ability of the IDT to impose high fines (which could
be up to 3 times the amount of profit made or loss avoided
as a result of insider dealing) has been abandoned in favour
of a wider range of civil sanctions. In addition, a disgorgement
order may, at the discretion of the MMT, be made subject
to compound interest from the date of the occurrence of
the market misconduct in question (Section 259). The SFC
also has the ability to fine regulated persons (see 'Disciplinary
Proceedings' below).
When making an order, the MMT may take account of any previous
convictions in Hong Kong, any previous findings of market
misconduct by the MMT and any previous findings of insider
dealing under the S(ID)O (S257(2)).
Cold shoulder orders, cease and desist orders, SFC costs
orders and disciplinary referral orders were introduced
by the SFO. Failure to comply with a disqualification, cold
shoulder or cease and desist order is a criminal offence
under sub-sections 257(10) and 258(10) punishable by a maximum
fine of $1 million and/or up to 2 years' imprisonment.
In addition, Sections 253(2) and 254(6) prescribe a penalty
of a maximum fine of $1 million and a maximum of 2 years'
imprisonment for failure to comply with various requirements
of the MMT or disrupting its proceedings. The conduct referred
to in those sections and in Sections 257(10) and 258(10)
is also liable to be punished as contempt under Section
261.
Appeals
Any person who is dissatisfied with a finding or determination
of the MMT may appeal to the Court of Appeal but only in
respect of a point of law or, with the leave of the Court
of Appeal, on a question of fact (Section 267).
