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The Insider Dealing Tribunal (IDT) has submitted to the Financial Secretary a report on its inquiry in relation to the listed securities of Easy Concepts International Holdings Limited (Easy Concepts) and Easyknit International Holdings Limited (Easyknit).
According to the report, the Tribunal, under the Chairmanship of the Honourable Mr Justice McMahon, concluded its findings by unanimous decision that Mr Koon Wing Yee; Mr Sonny Chan Kin Shing; Mr Alan Tsang Yiu Kai; Ms Helena Sum Wai Ching and Ms Christina Tsang Yuen Mai, were found to have engaged in insider dealing.
The Tribunal made no finding of insider dealing against the other three people named.
The Tribunal will proceed to hear representations on a date to be fixed to determine the amount of profit gained and thereafter to make consequential orders and penalties.
The Easy Concepts and Easyknit inquiry involved eight implicated parties and 25 witnesses, with a total of 54 actual hearing days.
The summary of the Tribunal's report (only English version available) is at the Annex.
Annex
Following is a summary of the Tribunal's report –
Introduction
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By notice dated May 26, 2003 and a corrigendum thereto dated January 7, 2005, the Financial Secretary required the IDT to institute an inquiry in relation to the listed securities of Easy Concepts and Easyknit to inquire into and determine –
(a) whether there has been insider dealing in relation to the companies connected with or arising out of the dealings in the listed securities of the companies by or on behalf of –
Chung Ki To, Sonny Chan Kin Shing and Lam Ping Wan on January 31, 2000;
(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 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 October 7, 2005.
Background
Easyknit had been a publicly listed company in Hong Kong since January 30, 1995. At the beginning of 2000 it owned 75% of Easy Concepts which had itself been a publicly listed company in Hong Kong for some considerable time before its acquisition by Easyknit in 1997. The principal business of Easyknit was the mechandising and export of garments. Easy Concepts was primarily involved in the operation and management of department stores and properties.
After 1997 the companies experienced a worsening financial crisis. Both companies were incurring significant losses, and were heavily in debt. The management of Easyknit was anxious to sell control of Easy Concepts so as to divest Easyknit of a loss-making subsidiary and raise cash. The attraction of Easy Concepts was that it provided an opportunity for a backdoor listing on the Hong Kong market. By January 2000 there had been previous attempts by Easyknit to sell Easy Concepts, which had been unsuccessful. But in late January 2000 a PRC-based conglomerate called Pollon Group which had diverse interests in the mainland energy sector and interest in the high-tech communications industry made an approach to the management of Easyknit about acquiring Easy Concepts.
The approach was made through Kester YUEN a director of Deloitte and Touche Corporate Finance Limited who had been involved in Easyknit's attempts to sell Easy Concepts and a meeting was arranged on January 28, 2000 between the management of Pollon Group and the management of Easyknit.
The management of Easyknit comprised KOON Wing Yee (KOON) who was the chairman of both Easyknit and Easy Concepts and Alan TSANG Yiu Kai (Alan TSANG) who was the vice chairman of both companies and a practising accountant in Hong Kong. The Pollon Group was represented by a number of persons at the meeting including Jeffery POON Wai Cheong who was the executive vice president of the group.
At the meeting on January 28 at Pollon Group's Central Plaza office which took place at 4:15 p.m. on a Friday afternoon after the market had closed, a discussion occurred as to the Pollon Group potentially taking a controlling interest in Easy Concepts. In broad terms what was proposed was that the Pollon Group would acquire 75% of Easy Concepts by new share subscription leaving the remaining 25% of its shareholding in the hands of Easyknit and the public.
During the weekend the financial information of Easy Concepts was subjected to some form of preliminary due diligence examination on behalf of the Pollon Group, and a draft joint announcement was circulated amongst the parties.
On the morning of Monday January 31 persons associated with KOON or Alan TSANG purchased a large number of Easy Concepts and Easyknit shares before trading in those companies shares was suspended at 10:47 and 10:48 a.m. respectively -
(a) Sonny CHAN Kin Shing (Sonny CHAN), a business acquaintance of KOON of long standing, purchased 568,000 Easy Concepts shares and 100,000 Easyknit shares through his accounts with Luen Fat Securities Co. Limited and South China Securities Limited. The purchase of the shares was financed by the margin facilities of the two trading accounts;
(b) LAM Ping Wan, KOON's another long-standing business associate, purchased 3.2 million Easy Concepts shares on his Fair Eagle Securities Co Limited account. The purchase of those shares was in a large part funded by money deposited into Lam's bank account on the day of settlement February 2, by way of cheques drawn on the bank accounts of three companies whose signatories were mutual acquaintances of KOON and/or LAM Ping Wan, namely CHAN Yiu Fai, LOUIE Tsz Chung and CHAN Chin Yuen. These three cheques had been funded in almost identical amounts on the same day, February 2, by three cheques drawn in the accounts of Easyknit Enterprise Co Limited and Nice Progress Investments Limited (both subsidiaries of Easyknit). Those three cheques had been signed by KOON; and
(c) 1.6 million Easyknit shares were purchased on the OCBC Securities (Hong Kong) Limited account of CHUNG Ki To, the husband of Ms TSANG Yuen Mai, Christina (Christina TSANG) who was the sister of Alan TSANG. The money used to pay for the purchase of Easyknit shares came in large part from bank accounts controlled by Alan TSANG and his wife Helena SUM Wai Ching, and from Christina TSANG. All of the 1.6 million Easyknit shares were sold on February 18 and 21, and the major parts of the proceeds, incorporating a large profit, were returned to bank accounts controlled by the same three people through Chung's own bank account.
At noon on January 31, (that is, after the suspension of trading in the two companies shares) another meeting between the Pollon Group and the Easyknit Group took place and there was a further discussion which advanced the matter. Further meetings took place over the following days. Subsequently on February 7 a formal subscription agreement was signed by the parties and on February 18 a public announcement of the details of Pollon Group's subscription in a new issue of Easy Concepts shares was made and the shares of the two companies resumed trading that same day.
On Monday January 31 the price of both companies' shares experienced a sharp rise before trading in them was suspended. In the 48 minutes of trading before suspension, Easyknit shares increased from $0.275 to $0.36 with a turnover before their suspension of 5,376,000 shares. More markedly Easy Concepts surged from $0.34 to $2.10 with a turnover of 4,228,000.
On their resumption of trading on February 18, the share price of Easyknit surged to a closing price of $1.22 representing a 239% increase on its closing price of $0.36 on January 31. Easy Concepts price surged to $10.05 representing a 379% increase on its January 31 closing price of $2.10.
It was alleged that before the announcement of Pollon Group's subscription in a new issue of Easy Concepts shares made on February 18, some parties had taken advantage of the relevant information they possessed to deal, counsel or procure another person(s) to deal in Easy Concepts and Easyknit shares, thus constituting insider dealing.
Findings
The tribunal concluded its findings by unanimous decision as follows –
(1) Mr KOON Wing Yee
Mr KOON Wing Yee was found to be an insider dealer in respect of -
(a) Mr Sonny CHAN's purchase of 568,000 Easy Concepts shares on January 31, 2000 in breach of the provisions of section 9(1)(a) and 9(1)(c) (Notes 1 & 2) of the Securities (Insider Dealing) Ordinance (SIDO); and
(b) Mr LAM Ping Wan's purchase of 3.2 million Easy Concepts shares on January 31, 2000 in breach of the provisions of section 9(1)(a) of the SIDO.
(2) Mr CHAN Kin Shing, Sonny (Mr Sonny CHAN)
Mr Sonny CHAN was found to be an insider dealer in respect of his purchase of 568,000 Easy Concepts shares and 100,000 Easyknit shares on January 31, 2000 in breach of the provisions of section 9(1)(e) (Note 3) of the SIDO.
(3) Mr TSANG Yiu Kai, Alan (Mr Alan TSANG)
Mr Alan TSANG was found to be an insider dealer in respect of the purchase of 1.6 million Easyknit shares by Ms TSANG Yuen Mai, Christina on the account of CHUNG Ki To at OCBC Securities (Hong Kong) Limited on January 31, 2000 in breach of the provisions of section 9(1)(a) and 9(1)(c) of the SIDO.
(4) Ms SUM Wai Ching, Helena (Ms Helena SUM)
Ms Helena SUM was found to be an insider dealer in respect of the purchase of 1.6 million Easyknit shares by Ms TSANG Yuen Mai, Christina on the account of CHUNG Ki To at OCBC Securities (Hong Kong) Limited on January 31, 2000 in breach of the provisions of section 9(1)(e) the SIDO.
(5) Ms TSANG Yuen Mai, Christina (Ms Christina TSANG)
Ms Christina TSANG was found to be an insider dealer in respect of the purchase of 1.6 million Easyknit shares on the account of CHUNG Ki To at OCBC Securities (Hong Kong) Limited on January 31, 2000 in breach of the provisions of section 9(1)(e) the SIDO.
The tribunal made no finding of insider dealing against the other three named persons.
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.
Ends/Friday, December 2, 2005
Issued at HKT 16:45
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