Nearly 300 Hong Kong investors are about to share an early $3 million Christmas present. That’s the amount that the former Morgan Stanley banker Du Jun has been told to pay the unwitting victims of his insider trading in 2007. White-collar criminals should beware, but investors shouldn’t expect a rush of future payments.
The ruling â€" the first of its kind in Hong Kong â€" is a big victory for regulators in the Asian financial center, where insider trading wasn’t even a criminal offense before 2003. It’s also a powerful riposte to those who argue that the victims of such crime are hard to identify. Hong Kong’s Securities and Futures Commission concluded that investors who sold their shares in CITIC Resources to Mr. Du had lost out by the amount the stock would have been worth if the market had access to the banker’s information. Since Mr. Du subsequently sold the shares, he could not return them, so must instead compensate investors in cash.
Insider trading cases are rarely this straightforward. Mr. Du was working for CITIC Resources and bought shares ahead of a transaction. Recent cases against hedge fund managers in the United States did not benefit from such an obvious smoking gun. Though that didn’t prevent the American regulators from securing convictions, it makes it harder to identify the investors who lost out. Where victims can be identified, the United States has a process for setting up so-called “fair funds†to redistribute fines. In other countries, the proceeds are often just recycled into government coffers.
Mr. Du has already received a six-year prison sentence and lifetime securities ban. But in case that wasn’t enough, the latest ruling may serve as an extra deterrent to other would-be insider traders. The lengthy battle to compensate investors, though, suggests similar cases will remain relatively rare. Unlike Christmas, such presents are unlikely to become an annual event.
Peter Thal Larsen is Asia Editor of Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
