Hong Kong's Independent Commission Against Corruption (ICAC) and the Hong Kong Securities and Futures Commission (SFC) conduct joint enforcement action, reportedly raiding two Chinese-funded brokerages.

Hong Kong ICAC and SFC Conduct Joint Operation Targeting Insider Trading and Corruption Involving Senior Executives of Licensed Corporations

The Independent Commission Against Corruption (ICAC) and the Securities and Futures Commission (SFC) carried out a joint operation called “Fuse” on March 10 and 11, focusing on insider trading and corruption. Senior executives of three licensed companies, including two securities firms and a hedge fund management company, are persons of interest in the case.

During the operation, ICAC and SFC officers searched 14 locations, including offices of the licensed firms and residences of the arrested individuals. ICAC also detained six men and two women aged between 35 and 60. Those detained include senior executives from the two securities firms, the hedge fund management company, and a middleman.

It is believed that senior managers of the licensed securities firms received over HKD 40 million in bribes from the owner of the licensed hedge fund management company, leaking confidential information about share placements of several Hong Kong-listed companies before they were publicly announced.

Using this insider information, the hedge fund management company established short positions by short selling the stocks and/or entering into short equity swap contracts. After the share placement news was released, the stock prices dropped, and the hedge fund reportedly made about HKD 3.15 billion from its short positions.

The joint operation originated from the SFC’s initial investigation into suspected insider trading, which uncovered possible corruption. The case was then referred to ICAC for corruption investigation, while the SFC continued to focus on insider trading and related violations under the Securities and Futures Ordinance.

As the investigation is ongoing, no further comments will be provided by ICAC and SFC.

Notes:

1. The operation was conducted under the Memorandum of Understanding between ICAC and SFC.

2. The suspects are believed to have violated the Prevention of Bribery Ordinance, including offering advantages to agents and accepting advantages (bribery). They are also suspected of offenses under the Organized and Serious Crimes Ordinance, such as handling property believed to be proceeds of crime (“money laundering”), and violations of the Securities and Futures Ordinance related to insider trading and misconduct.