Hong Kong's Independent Commission Against Corruption (ICAC) and the Hong Kong Securities and Futures Commission (SFC) conduct joint enforcement action, reportedly raiding two Chinese-funded brokerages.

Hong Kong ICAC and SFC Conduct Joint Operation Targeting Insider Trading and Corruption Involving Senior Executives of Licensed Corporations

The Independent Commission Against Corruption (ICAC) and the Securities and Futures Commission (SFC) carried out a joint operation called “Fuse” on March 10 and 11 to combat insider trading and corruption. Senior executives of three licensed companies, including two securities firms and a hedge fund management company, are under investigation (Note 1).

During the operation, officers searched 14 locations, including the offices of the licensed companies and the residences of those arrested. The ICAC also detained six men and two women aged between 35 and 60. Those arrested include senior managers from the two securities firms, the hedge fund management company, and a middleman (Note 2).

It is believed that senior managers of the securities firms received over HKD 40 million in bribes from the owner of the hedge fund management company in exchange for leaking confidential information about share placements of various Hong Kong-listed companies before they were publicly announced.

Using this insider information, the hedge fund management company established short positions by selling the stocks short and/or entering into short equity swap contracts. When the share placement news was released, the stock prices dropped, and the hedge fund reportedly made about HKD 3.15 billion from its short positions.

The joint operation was initiated after the SFC’s initial investigation into suspected insider trading uncovered possible corruption. The case was then referred to the ICAC for corruption investigation, while the SFC continued to focus on insider trading and related violations under the Securities and Futures Ordinance.

As the investigation is ongoing, no further comments will be provided by the ICAC and the SFC.

Notes:

1. The operation was conducted under the Memorandum of Understanding between the ICAC and the SFC.

2. The suspects are believed to have violated the Prevention of Bribery Ordinance, including offering advantages to agents and accepting advantages (bribery). They are also suspected of offenses under the Organized and Serious Crimes Ordinance, such as handling property believed to be proceeds of crime (“money laundering”), and violations of the Securities and Futures Ordinance related to insider trading and misconduct.