Limited and Hong Kong China Limited (now renamed
as Lippo China Resources Limited)
The Insider Dealing Tribunal (IDT) has submitted to the Financial Secretary a report on its inquiry in relation to dealings in the listed securities of HKCB Bank Holding Company Limited (HKCBH) and Hong Kong China Limited (HKC) (now renamed as Lippo China Resources Limited).
By unanimous decision, the tribunal, under the Chairmanship of The Honourable Mr Justice Lugar-Mawson, found that Mr Carlton Poon Kam Tao and Ms Jenny Kong Yuen Kwan had engaged in insider dealing.
The tribunal did not find the other two implicated persons to have engaged in insider dealing.
The tribunal has set down hearing dates between Monday, May 30 to Friday, June 3, 2005 to hear representations before it determines the amount of profit gained or loss avoided and thereafter makes consequential orders and imposes penalties.
The inquiry involved 42 witnesses, including all 4 implicated persons, with a total of 78 days hearing evidence and submissions.
The summary of the tribunalˇ¦s report is at the Annex.
Following is a summary of the Tribunal's report -
By notice dated November 2, 2000, the then Financial Secretary required the Insider Dealing Tribunal (the Tribunal) to institute an inquiry in relation to dealings in the listed securities of HKCB Bank Holding Company Limited (HKCBH) and the Hong Kong China Limited (HKC) (now renamed as Lippo China Resources Limited) to inquire into and determine -
(a) whether there had been insider dealing in relation to the company arising out of the dealings in the listed securities of HKCBH and HKC by Messrs Carlton Poon Kam Tao and Edmund Kung Chiu Nam and Ms Jenny Kong Yuen Kwan during the period from May 1, 1997 and May 23, 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
(c) the amount of any profit gained or loss avoided as a result of such insider dealing.
The Tribunal, under the Chairmanship of the Honourable Mr Justice Lugar-Mawson, 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 March 10, 2005.
The Lippo Group is owned and controlled by the Riady Family who come from Indonesia and who are well known in both Hong Kong and Indonesia.
Before the reorganisation, Lippo was the holding company of HKCB Bank Holding Company Ltd (HKCBH) and Hong Kong China Ltd (HKC) (now renamed Lippo China Resources Limited). The securities of the three companies were listed on the Stock Exchange of Hong Kong Limited (SEHK).
HKCBH's principal activities were retail and commercial banking, conducted through Hong Kong China Bank Ltd (HKCB) (a licensed bank but an unlisted company). Securities and futures broking businesses were conducted through its broking arm - Lippo Securities Holdings Limited. HKC's principal activities were mainly investment holding, property investment and development.
Since 1992, China Resources (Holdings) Company Ltd. (CRH), which is part of the China Resources Group, had cooperated with the Lippo Group in a number of businesses. Before June 23, 1997, CRH held a 50.8% interest in China Resources Enterprise Ltd (CRE) and a 1% interest in HKCBH. CRH reported directly to the Ministry of Foreign Trade and Economic Co-operation in the PRC. The market in Hong Kong generally regarded it as a State-owned conglomerate.
On June 23, 1997 HKCBH and HKC, together with Lippo, published a joint announcement of a group reorganisation consisting of various transactions affecting all three corporations.
Among the changes effected by the reorganisation were:
1. CRH would first transfer its 50% interest in HKCB to a new company and then transfer its interest in that new company to CRE. CRE, which owned the 50% interest in HKCB via the new company would then sell the new company to HKCBH (which would then own 100% of HKCB) in exchange for new shares in HKCBH; these new shares would be issued to a joint venture company in such a way that the joint venture company (which would be owned 50/50 by Lippo and CRE) would own 74% of the enlarged issued share capital of HKCBH (the HKCBH reorganisation).
2. Lippo would transfer its 56% interest in HKCBH to a new company. Lippo would then sell its 50% interest in this company to HKC, so that the new company would be owned 50/50 by HKC and CRE (the HKCB acquisition).
3. Lippo would sell shares representing some 8% of HKC's issued share capital to CRH.
Trading in HKCBH and HKC's shares was suspended on June 6, 1997, prior to the announcement of the proposed reorganisation on June 23, 1997. Starting from close of trading on April 15, 1997 (which is the date HKCBH's share price started to rise) the price of Lippo, HKC and HKCBH securities increased by 61%, 182% and 270% respectively following the June 23 announcement, the Hang Seng Index rose 21.7% over the same period.
There were a number of benefits to all parties involved in the reorganisation. Generally it enabled Lippo and CRH to build on their existing relationship and expand that relationship into other areas of financial services. By becoming a direct partner with Lippo in the company controlling HKCBH (instead of just HKCB) CRE would be able to participate in the broader range of financial services businesses (including securities and insurance) which HKCBH carried on. HKCBH would be able to consolidate HKCB's entire profits and its capital base would increase by approximately $900 million. HKC, which had hitherto been principally a property stock, would obtain strong, stable and recurrent earnings from HKCBH and rely less on the volatility of the property market for rental income and property disposals. And Lippo's cash resources would be increased by approximately $697 million.
The proposal for reorganisation, which had a material effect on the share price was considered and referred to as "relevant information" in that case.
It was alleged that before the HKCBH Reorganisation and the HKCB Acquisition were made known to the public, various parties had taken advantage of the relevant information they possessed to buy and sell shares, thus constituting insider dealing.
By unanimous decision, the Tribunal concluded as follows -
(I) Mr Carlton Poon Kam Tao (Carlton Poon)
In the context of section 9(1)(a) (Note 1) and 9(1)(c) (Note 2) of Securities (Insider Dealing) Ordinance, Cap. 395 (SIDO), the Tribunal was satisfied that Carlton Poon, a director of Worldsec International Limited, was a connected person by virtue of the provisions of section 4(1)(c)(i) (Note 3) of SIDO as there was a professional or business relationship in existence between himself and Worldsec, and the Lippo Group of which the corporations were part from the time he attended the first meeting with Mr Stephen Riady on May 1, 1997.
Carlton Poon was in possession of relevant information relating to HKCBH and HKC and knew it to be relevant information. Carlton Poon engaged in insider dealing in two instances -
Firstly, through trades in Ms Jenny Kong's name:
(i) When Carlton Poon counselled and procured his wife, Ms Jenny Kong, to deal in the securities of HKCBH and HKC on May 2, 7, 8, 12 & 20, 1997, knowing or having reasonable cause to believe that she would deal in those securities [section 9(1)(a)]; or
(ii) When Carlton Poon disclosed the information to his wife, Ms Jenny Kong, knowing or having reasonable cause for believing that she would make use of the information for dealing in the securities of HKCBH and HKC on May 2, 7, 8, 12 & 20, 1997, [section 9(1)(c)].
Even if Carlton Poon was not a connected person he would nevertheless fall foul of section 9(1)(e) (Note 4) of SIDO by reason of his counselling and procuring his wife Ms Jenny Kong to deal in the securities of HKCBH and HKC, he having information about those corporations, which he knew to be relevant information, and which he had received from a person (Mr Stephen Riady and Mr Kelvin Lo) whom he knew to be connected with those corporations.
Secondly, through trades in Mr Edmund Kung's name:
When he purchased HKC warrants via Edmund Kung's Worldsec account on May 16 & 23, 1997 [section 9(1)(a)].
(II) Ms Jenny Kong Yuen Kwan (Jenny Kong)
Jenny Kong is Carlton Poon's wife. The Tribunal was satisfied that Jenny Kong engaged in insider dealing when she dealt in the securities of HKCBH and HKC on May 2, 7, 8, 12 & 20, 1997, after receiving information, which she knew to be relevant, about those corporations from her husband, Carlton Poon; and that when she received such information from her husband she knew that he had come by it by virtue of his contacts arising out of the professional or business relationship he had with the Lippo Group.
(III) Mr Edmund Kung Chiu Nam (Edmund Kung)
Edmund Kung is a former business associate and former friend of Carlton Poon. The Tribunal made no finding of insider dealing against Edmund Kung because it was not satisfied that there was sufficient evidence for it to conclude that he was in knowing possession of relevant information relating to HKCBH and HKC for him to have acted in contravention of section 9(1)(e) of SIDO, when Carlton Poon purchased HKC warrants via his (Edmund Kung's) Worldsec account on May 16 & 23 1997.
(IV) Mr Stephen Riady (Stephen Riady)
Stephen Riady is the deputy chairman of the Lippo Group, the chairman of Lippo, deputy chairman and managing director of HKC, executive director of HKCBH and director of many subsidiaries of the Lippo Group. The Tribunal concluded that there was insufficient evidence to justify a finding that Stephen Riady engaged in insider dealing in the securities of HKCBH and HKC.
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 insider dealing in relation to a listed corporation takes place 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 4(1)(c) of the SIDO states that an individual who occupies a position which may reasonably be expected to give him access to relevant information concerning the corporation by virtue of:
(i) any professional or business relationship existing between himself (or his employer or a corporation of which he is a director or a firm of which he is a partner) and that corporation, a related corporation or an officer or substantial shareholder in either of such corporations.
Note 4: Section 9(1)(e) of the SIDO states that insider dealing in relation to a listed corporation takes place 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.
Ends/Thursday, April 7, 2005