The toughest jail sentence imposed on market manipulation cases since the Securities and Futures Ordinance (SFO) came into effect in 2003 has been levied on the perpetrators of a ramp and dump scheme.
On July 22, 2024, the Court of First Instance sentenced Ms Sit Yi Ki and Mr Tam Cheuk Hang to imprisonment of six years and eight months, and Ms Lam Wing Ki to imprisonment of four years and four months after they were found guilty in a jury trial of conspiracy to carry out false trading in the shares of Ching Lee Holdings Limited.
Following extensive investigations and collaboration with both local and overseas regulators, the Securities and Futures Commission (SFC) found a complex cross-border ramp and dump syndicate involving local and international individuals and companies.
The scheme involved an unprecedented scale of false trading and stock price manipulation to inflate investment company Ching Lee Holdings’ share price by as much as 2000% netting illicit profits of over HK$124m ($15.9m).
“The jail sentences reflect that the Court is taking a very dim view of misconduct pernicious to the reputation and integrity of Hong Kong’s securities and futures markets.”
Christopher Wilson, Executive Director of Enforcement, SFC
In sentencing, Deputy High Court Judge Douglas Yau remarked that the conspiracy was intricately and meticulously planned. Having considered various sentencing authorities, and taking into account the scale, sophistication and international element of the conspiracy and the false trading, as well as the importance of maintaining the integrity of Hong Kong as an international financial centre, the Court considered that deterrence and punishment are most important in this case.
The SFC’s Executive Director of Enforcement, Christopher Wilson, said: “The jail sentences reflect that the Court is taking a very dim view of misconduct pernicious to the reputation and integrity of Hong Kong’s securities and futures markets. Putting the market manipulators behind bars sends a very strong and clear message to would-be wrongdoers that misconduct of any form has no place in Hong Kong’s financial markets, and that they would be brought to justice and face the full force of the law.”
“The outcome of this highly sophisticated and complex case also underscored the SFC’s determination to bring its resources and powers to bear in tackling market abuses and maintain investor confidence in Hong Kong’s capital markets,” Mr Wilson added.
In parallel, the SFC is seeking orders under section 13 of the SFO against various local and overseas corporations and individuals, including the three jailed, to disgorge their profits in the manipulative scheme involving Ching Lee shares and/or restore the affected counterparties to their pre-transaction positions.
In this connection, the SFC had obtained interim injunctions freezing assets of up to HK$124m ($15.9m), representing the combined profits generated from trading activities of the manipulative scheme.
GRIP Comment
The landmark jail sentences imposed by the Hong Kong SFC are a clear indication of the regulator’s heightened scrutiny of market manipulation, particularly ramp and dump schemes.
This case also highlights the collaborative efforts between the SFC and local and overseas regulators. The press notice stated that the SFC was assisted by an impressive roll call of global regulators: the China Securities Regulatory Commission, the Hong Kong Independent Commission Against Corruption, the Monetary Authority of Singapore, the Ontario Securities Commission, the Singapore Police Force, the United Kingdom FCA, and the US SEC. Emma Parry, independent C-Suite & Board Adviser, told GRIP that the complex case was a good example of when “international collaboration leads to convictions.” She added, “what is particularly noteworthy in this case are the significant number of securities accounts implicated in the fraud. Firms must be able to connect the dots between manipulative trading activity and a large number of accounts.”
Listed firms must take proactive steps to enhance their monitoring and internal controls to mitigate risks and protect their reputation. Lawyers at Sidley Austin said it is worth noting that market players and intermediaries also often play a key role in facilitating transactions. Effective monitoring and reporting of suspicious trading activity by intermediaries may help the Hong Kong regulator’s ongoing work “to combat market market manipulation and identify the potential bad actors.”