Hong Kong: Two solicitors engaged in fraud
- Court finds two solicitors engaged in insider dealing and fraud or deception
The Court of First Instance today found that two solicitors, Mr Eric Lee Kwok Wa and Ms Betty Young Bik Fung, and Eric Lee’s sister, Ms Patsy Lee Siu Ying, contravened the Securities and Futures Ordinance (SFO) by insider dealing in the shares of Asia Satellite Telecommunications Holdings Ltd (Asia Satellite) and engaged in fraud or deception in transactions involving securities of Hsinchu International Bank Company Ltd (Hsinchu Bank) (Note 1).
The court’s decision is a landmark ruling on the interpretation of section 300 of the SFO which prohibits the use of fraudulent or deceptive schemes in transactions involving securities.
The Securities and Futures Commission (SFC) started civil proceedings in the court against Eric Lee, Betty Young, Patsy Lee and Ms Stella Lee, both sisters of Eric Lee, in December 2010 under section 213 of the SFO and alleged the defendants made a total profit of $2.9 million in these transactions.
The SFC alleged that, in relation to Hsinchu Bank transactions in September 2006:
- Betty Young obtained information about a tender offer for Hsinchu Bank shares while working as a lawyer seconded to a client of her employing law firm;
- the client she was seconded to intended to make the tender offer and she was working on the offer (Note 2);
- the information about the offer was non-public, confidential and materially price sensitive;
- subsequently, Betty Young bought Hsinchu Bank shares and tipped off Eric Lee and his sisters to buy the shares before the announcement of the tender offer; and
- this amounted to fraud or deception under section 300 of the SFO because Betty Young owed duties to her employer and their client including the duty to refrain from using such information for personal gain.
The SFC further alleged that, in relation to Asia Satellite transactions in February 2007:
- Eric Lee obtained information about the proposed privatization of Asia Satellite shares when the law firm he worked for advised on this transaction;
- that information was non-public, confidential and materially price sensitive;
- subsequently Eric Lee tipped off Betty Young and his sisters to buy Asia Satellite shares before the announcement of the proposed privatization (Note 3); and
- this amounted to insider dealing under section 291 of the SFO.
The court found that these allegations were proven against Betty Young, Eric Lee and Patsy Lee.
The court ruled that there was not enough evidence to prove the allegations against Stella Lee. Nevertheless, the court may exercise its power under section 213 of the SFO against her to remove the illicit profit from her and restore the victims in the transactions. The court may make orders under section 213 against people who are knowingly or otherwise involved in a contravention of the SFO.
The SFC and the defendants are directed to jointly work out the precise terms of the final orders in view of the judgment.