Hong Kong SFC Commences Second Criminal Trial For Insider Dealing

by Mary Swire, Tax-News.com, Hong Kong

12 June 2008

The Hong Kong Securities and Futures Commission (SFC) has commenced criminal proceedings against Hung Lai Mei Vicky for alleged insider dealing in the shares of Sino Golf Holdings Limited, marking the second criminal prosecution for insider dealing since the inception of the Securities and Futures Ordinance in 2003.

Hung appeared in Eastern Magistracy on 5th June in response to 4 summonses. No plea was taken. The case was adjourned to 26th June 2008 for plea and will proceed as a summary prosecution in the Magistrates Court.

The SFC alleges that Hung, a finance manager of Sino Golf, sold 180,000 shares in Sino Golf in December 2004 whilst in possession of relevant information.

Hung is alleged to have known that Huffy Corporation, a major corporate client of Sino Golf, had filed for Chapter 11 bankruptcy in the USA and that Sino Golf would therefore need to make a bad debt provision which would have a material effect on its financial position.

Huffy Corporation was a USA-based corporation engaged in the manufacturing and trading of golf equipments, bags and accessories. Huffy was one of the top five customers of Sino Golf Manufacturing Company Limited, a wholly owned subsidiary of Sino Golf Holdings Limited.

On 20th October 2004, Huffy filed for bankruptcy protection in USA and notified Sino Golf on 21st October 2004. Although Huffy’s bankruptcy was publicly known in the USA, the SFC will allege that the connection between Huffy’s financial position and Sino Golf’s financial position was not publicly known in Hong Kong.

A Chapter 11 bankruptcy protection in USA is an attempt by a company to stay in business while a bankruptcy court supervises the reorganisation of the company’s contractual and debt obligations. The court can grant complete or partial relief from most of the company’s debts and contracts and obligations, so that the company can make a fresh start of business.

Upon filing for Chapter 11 bankruptcy protection, creditors are not allowed to attempt to collect previously incurred debts owed to others by the company except through the bankruptcy court.

Sino Golf announced its financial results on 18th April 2005 which included a substantial bad debt provision of HKD9.5mn and recorded a 35% drop in net profit. The market reacted negatively to the news and the share price of Sino Golf dropped by 22.7% from HKD1.10 on 18th April 2005 to close at HKD0.85 on 19th April 2005.

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