Insider Dealing on Firstone International Holdings Limited

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The Insider Dealing Tribunal (IDT) has submitted a report to the Financial Secretary on its inquiry in relation to the listed securities of Firstone International Holdings Limited (Firstone) (now renamed as Fortuna International Holdings Limited).

According to the report, the tribunal, under the chairmanship of the Honourable Mr Justice McMahon, concluded its findings by unanimous decision that Mr James Huang Xiao Jiang, Ms Phoebe Chiu Yuen Man, Mr Eddie Chow Kar Chun and Ms Kwan Lai Sheung were found to have engaged in insider dealing.

The tribunal did not find 12 other named persons to have engaged in insider dealing. There was no finding of insider dealing made against Mr Yip Hiu Sui who was deceased before the commencement of the inquiry.

The tribunal will proceed to hear representations on a date to be fixed to determine the amount of profit gained or loss avoided and thereafter to make consequential orders and penalties.

The Firstone inquiry is a complicated case which involves 17 implicated parties, four British Virgin Islands companies and 31 witnesses, with a total of 48 actual hearing days.

The summary of the tribunal's report is at the Annex.

Ends/Wednesday, April 21, 2004

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Annex

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Following is a summary of the Tribunal's report -

Introduction

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By notice dated 23 May 2003, the then Financial Secretary required the IDT to institute an inquiry in relation to the listed securities of Firstone to inquire into and determine -

(a) whether there has been insider dealing in relation to the company connected with or arising out of the dealings in the listed securities of the company by or on behalf of -

Lombok Holdings Limited, Super Kingdom Investments Limited, Dragon Sentosa Limited, Setter Investments Limited, James Huang Xiao Jiang, Mo Siu Chung, Fang Naijun, Xie Ping, Phoebe Chiu Yuen Man, Lai Wai Yin, Diane Chu, Kwan Lai Sheung, Eddie Chow Kar Chun, Deng Guoxin, Li Xiao Jian, Lo Hon Chuen, Wang Chengzhi, Chow Ching Sum, Wu Xuhui, Tang Wai Na and Yip Hiu Sui during the period from 20 June 1997 to 23 July 1997 (both dates inclusive);

(b) in the event of there having been insider dealing as described in paragraph (a) above, the identity of each and every insider dealer; and

The tribunal under the Chairmanship of the Honourable Mr Justice McMahon, completed its inquiry in respect of liability, that is to identify those persons who did or did not commit acts of insider dealing, and submitted a report in that regard to the Financial Secretary on 2 April 2004.

The company

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Firstone was listed on the Stock Exchange of Hong Kong Limited ("SEHK") on 8 October 1992. Its primary business was the design and manufacture of components used in the assembly of integrated electronic circuits used in audio and visual items.

In 1996, Firstone had diversified to some extent from its base electronic business into the food and beverages business. By early 1997, Firstone had given consideration to concentrate on its more profitable food and wine producing interests. In the course of its restructuring in this regard, and as the result of various debts, Firstone had found itself by early 1997 in need of capital.

On 2 June 1997, Firstone announced a proposal of a one-for-one rights issue in order to raise about HK$162 million in capital.

After the rights issue arrangements had been concluded, discussions took place between Firstone and Guangnan Group via their intermediaries on the possibility of the Guangnan Group taking up a significant placement of Firstone shares, leading up to a meeting between the leaders of the two sides on 26 June 1997. Eventually a formal agreement was signed on 17 July 1997 by which Firstone was to make a placement of some 20% of its issued shares with Guangnan (Holdings) Limited.

On 14 July 1997, Firstone requested SEHK to suspend trading in its shares, pending an announcement of the placement of shares. On 17 July 1997, Firstone issued an announcement of the 20% placement of shares to Guangnan (Holdings) Limited. The announcement was published in Hong Kong press on 18 July 1997 and trading in Firstone shares resumed on that day.

Upon resumption of trading of Firstone shares on 18 July 1997, Firstone share price rose sharply to reach a high of $1.77 before closing at $1.75, a 178% increase from its previous close. The daily turnover also increased from 24.36 million shares on 11 July 1997 to 208.25 million shares on 18 July 1997.

It was alleged that before the announcement of the placement of shares, various parties had taken advantage of the relevant information they possessed to deal, counsel or procure another person(s) to deal in Firstone shares, thus constituting insider dealing.

Findings

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The tribunal concluded its findings by unanimous decision as follows -

(1) Mr James Huang Xiao Jiang (Mr James Huang)

Mr James Huang was at all relevant times a director of Guangnan (Holdings) Limited and of various other companies within the Guangnan Group. Mr James Huang was found to be an insider dealer in breach of section 9(1)(a) (Note 1) of the SIDO in respect of all Firstone share purchases made from 27 June 1997 to 11 July 1997 inclusive made on all the accounts of the four British Virgin Islands companies, namely Setter Investments Limited, Lombok Holdings Limited, Super Kingdom Investments Limited and Dragon Sentosa Limited. Mr Huang is therefore liable in this regard for all purchases made from 27 June 1997 to 11 July 1997 inclusive on or allocated to the accounts of those companies at Credit Lyonnais Securities (Asia) Limited, Oriental Patron Securities Limited, CA Pacific Securities Limited and Asia Investment Management Limited.

In the course of counselling or procuring the purchase of Firstone shares on the accounts of the above four companies, Mr James Huang disclosed the relevant information to Ms Phoebe Chiu Yuen Man and Mr Eddie Chow Kar Chun in breach of section 9(1)(c) (Note 2) of the SIDO. Mr James Huang is accordingly liable for that part of the dealings in Firstone shares conducted by those persons on the accounts of the same four companies as follows -

(a) Dealings of Ms Phoebe Chiu Yuen Man (Ms Phoebe Chiu)

Ms Phoebe Chiu's dealings (and her dealings through her nominee Ms Diane Chu) on the accounts of Lombok Holdings Limited and Super Kingdom Investments Limited at Oriental Patron Securities Limited and Credit Lyonnais Securities (Asia) Limited from 27 June 1997 to 11 July 1997 inclusive.

(b) Dealings of Mr Eddie Chow Kar Chun (Mr Eddie Chow)

Mr Eddie Chow's purchases (through Asia Investment Management Limited) of Firstone shares allocated to the accounts of Setter Investments Limited and Dragon Sentosa Limited at Asia Investment Management Limited.

(2) Ms Phoebe Chiu

Ms Phoebe Chiu at all material times was the Business Manager of Guanfair Finance and Investments Limited, a company within the Guangnan Group. She was found to have been an insider dealer in breach of section 9(1)(e) (Note 3) of the SIDO in respect of -

(a) all purchases of Firstone shares on the accounts of Lombok Holdings Limited and Super Kingdom Investments Limited at Oriental Patron Securities Limited and Credit Lyonnais Securities (Asia) Limited between 27 June 1997 and 11 July 1997 inclusive;

(b) the purchase of Firstone shares on her own account at Oriental Patron Securities Limited on 4 July 1997; and

(c) the purchase of Firstone shares on the account of her mother Ms Lai Wai Yin at Oriental Patron Securities Limited on 10 July 1997.

(3) Mr Eddie Chow

Mr Eddie Chow was at all relevant times an investment adviser who was a director of Asia Investment Management Limited. He was found to have been an insider dealer in breach of section 9(1)(e) of the SIDO in respect of all purchases of Firstone shares by Asia Investment Management Limited allocated to the accounts of Setter Investments Limited and Dragon Sentosa Limited from 27 June 1997 to 11 July 1997 inclusive (i.e. purchases made on 9 July 1997 and 11 July 1997).

(4) Ms Kwan Lai Sheung

Ms Kwan was a close friend of Ms Phoebe Chiu in 1997. She was found to have been an insider dealer in breach of section 9(1)(e) of the SIDO in respect of all purchases of Firstone shares made by her own accounts in her name at CA Pacific Securities Limited, On Hing Securities Limited and Yardley Securities Limited between 27 June 1997 and 11 July 1997 inclusive.

(5) Mr Yip Hiu Sui

Mr Yip was deceased before commencement of the inquiry. Hence, no finding of insider dealing was made against him by the tribunal.

The tribunal made no finding of insider dealing against the other 12 persons named in the notice issued on 23 May 2003.

The tribunal will proceed to hear representations on a date to be fixed to determine the amount of profit gained or loss avoided and thereafter to make consequential orders and penalties.

Note 1: Section 9(1)(a) of the SIDO states that insider dealing in relation to a listed corporation takes place when a person connected with that corporation who is in possession of information which he knows is relevant information in relation to that corporation deals in any listed securities of that corporation or their derivatives (or in the listed securities of a related corporation or their derivatives) or counsels or procures another person to deal in such listed securities knowing or having reasonable cause to believe that such person would deal in them.

Note 2: Section 9(1)(c) of the SIDO states that when relevant information in relation to that corporation is disclosed directly or indirectly, by a person connected with that corporation, to another person and the first-mentioned person knows that the information is relevant information in relation to the corporation and knows or has reasonable cause for believing that the other person will make use of the information for the purpose of dealing, or counselling or procuring another to deal, in the listed securities of that corporation or their derivatives (or in the listed securities of a related corporation or their derivatives.

Note 3: Section 9(1)(e) of the SIDO states that when a person who has information which he knows is relevant information in relation to that corporation which he received (directly or indirectly) from a person - (i) whom he knows is connected with that corporation; and (ii) whom he knows or has reasonable cause to believe held that information by virtue of being so connected, deals in the listed securities of that corporation or their derivatives (or in the listed securities of a related corporation or their derivatives) or counsels or procures another person to deal in those listed securities or their derivatives.