Freshfields Hong Kong

By Ajay Shamdasani

HONG KONG/NEW YORK, Sept. 15 (Thomson Reuters Accelus) – The Hong Kong securities regulator’s legal troubles in bringing disciplinary action against New York-based hedge fund Tiger Asia Management has shown the limitations of its regulatory reach and signalled that funds may be safer operating from offshore, according to a source close to the proceedings. The source, a senior local financial lawyer close to the case, said that his advice for foreign funds that did not need to be licensed and regulated in Hong Kong was to forgo doing so in order to reduce the risk of disciplinary action by the territory’s Securities and Futures Commission.

The SFC is locked in a legal battle over its disciplinary action against Tiger Asia and three of its officers — Bill Sung Kook Hwang, Raymond Park and William Tomita — first taken in August 2009. The SFC alleged the hedge fund and its senior management breached local market misconduct and insider dealing rules during a placing of China Construction Bank shares in Hong Kong in early 2009, earning itself a profit of $29.9 million.

The regulator subsequently sought to freeze HK$38.5 million ($4.93 million) of the fund’s assets in Hong Kong and impose a trading ban on the fund, but its enforcement progress impeded as the SFC’s legal challenge against the fund ground to a halt in the local courts. At stake was the interpretation of the territory’s Securities and Futures Ordinance (SFO) and its definition of whom could determine whether a breach of the market misconduct provisions contained within section 213 of the ordinance had occurred. In short, the Court of First Instance (CFI) in June 2011 ruled against the regulator, saying only the criminal courts and the Market Misconduct Tribunal (MMT) were able to determine whether a breach of the SFO’s market misconduct rules had taken place. Unhappy with this outcome, the SFC appealed the ruling in early September 2011.