The recent conviction of Du Jun, a former managing director of Morgan Stanley Asia’s fixed-income department from 2006 until May 2007, highlights the major crackdown on insider trading that has occurred in that territory in the past few years. Du now faces up to seven years in jail after a court found him guilty this week in the highest-profile "insider dealing" case ever prosecuted in the territory.
Insider trading (aka "insider dealing") has been a criminal offense in Hong Kong since 2003. Hong Kong's Securities and Futures Commission did not prosecute anyone under this law for five years, but came to life in this area in 2007 when it initiated a series of such investigations.
SFC filed its first criminal insider trading charges in February 2008.
In March 2009, a former BNP Paribas vice president, his girlfriend,
and four others were found guilty of insider trading in the first-ever trial for such an offense under the Securities and Futures Ordinance. Last month, the BNP Paribas executive and his girlfriend became the
first people in Hong Kong to be jailed for insider trading (sentenced to 26 months and 12 months, respectively). Just a few weeks later, the SFC secured a prison sentence in a
second case involving a former official from Chinese Estates Holdings who was sentenced to eight months in prison.
The FT
reports that since commencing this string of cases in 2007, the SFC has secured 10 criminal convictions and four jail sentences for insider trading. The Du case is the biggest to date, however. Today, facing seven years in prison, Du argued that Morgan Stanley's flawed compliance system was partly to blame for his insider trading. His lawyer
argued that Du "would not have traded in the shares of the Hong Kong-listed CITIC Resources on nine occasions in 2007, had he been stopped by his own compliance officers from the start." It emerged at his trial that Du's trading activities were actually approved by Morgan Stanley's compliance department, which did not realize that he had access to key information.