SECURITIES AND FUTURES COMMISSION v. YIK FONG FONG AND OTHERS

HCA 2524/2016

[2021] HKCFI 3351

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2524 OF 2016

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J U D G M E N T

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A. OVERVIEW

1.  In this action the plaintiff (“SFC”) claims against the 1^st defendant (“Yik”), the 2^nd defendant (“D2”) and the 3^rd defendant (“D3”) (collectively “Ds”) for (1) declarations that Ds have engaged in insider dealing in contravention of s.291 and/or s.270 of the Securities and Futures Ordinance (Cap. 571) (“SFO”), and (2) an order that Ds be jointly liable to disgorge the profits made together with other ancillary relief sought in the prayer of the Amended Statement of Claim dated 10 September 2018 (“ASOC”).

2.  Despite the length of the SFC’s Opening submissions dated 23 August 2021 (“Opening”) and the volume of the documents in the hearing bundles[1], the case against Ds is relatively straight-forward and may be summarised as follows:

(1)  Between February and April 2016, Yik was intimately involved in the negotiations on a potential acquisition of a majority stake in TeleEye Holdings Limited (“TeleEye”), a company listed on the GEM Board of The Stock Exchange of Hong Kong Limited (“HKEx”) (“Takeover”). 

(2)  From 1 March 2016 to 12 April 2016, Yik placed orders to purchase 17,720,000 TeleEye shares through D2’s securities accounts at Kingsway Services Group Limited (“Kingsway”, “Kingsway A/C”) and China Everbright Securities (HK) Limited (“Everbright”, “Everbright A/C”), while D3 placed orders to purchase 5,000,000 TeleEye shares through his securities account at UOB Kay Hian (Hong Kong) Limited (“UOB”, “UOB A/C”) (collectively “D2/D3’s A/Cs”).  The average purchase price of the 22,720,000 TeleEye shares was HK$0.4295 per share. 

(3)  The Takeover was announced on 14 April 2016.  The price of TeleEye shares increased substantially.  From 15 April 2016 to 20 May 2016, Yik placed orders to sell 15,650,000 TeleEye shares from D2/D3’s A/Cs and the average sale price was HK$1.259 per share.

3.  It is SFC’s primary case that:

(1)  Yik committed the offence of insider dealing under ss.270(1)(a)(i) and/or 291(1)(a) of the SFO in that she was a person connected with TeleEye, had information which she knew was inside information in relation to TeleEye, but dealt in the listed shares of TeleEye.

(2)  D2/D3 committed the offence of insider dealing under ss.270(1)(e)(i) and/or 291(5)(a) of the SFO in that each of them is a person who had information which he/she knew was inside information in relation to TeleEye, and which he/she received directly or indirectly from Yik, a person whom he/she knew was connected with TeleEye and whom he/she knew or had reasonable cause to believe held the information as a result of being connected with TeleEye, but dealt in the listed shares of TeleEye.

4.  As a fallback position, it is the SFC’s alternative case that:

(1)  If Yik was not a connected person, she received the inside information from Denis Tse, a connected person;

(2)  If Yik did not deal in TeleEye shares, she is liable for counselling and/or procuring D2/D3 to deal in TeleEye shares, and disclosing inside information to D2/D3; and

(3)  If D2/D3 are not liable for the offence of insider dealing, the SFC seeks relief under s.213 of the SFO on the basis that D2/D3 were involved in or were parties to Yik’s contravention of the SFO by allowing Yik to trade in TeleEye shares through their securities accounts.

5.  On the basis of either case, the SFC is entitled to relief under s.213(2)(b) of the SFO, including an order requiring Ds to disgorge the profits made from dealing in TeleEye shares.

6.  Yik did not file any acknowledgement of service or defence. 

7.  D2/D3 do not dispute that Yik placed the orders to buy and sell the TeleEye shares in question.  Their case, as pleaded in the Defence filed on 18 May 2017 (“Defence”) and supplemented by their witness statements (“WS”), may be summarised as follows:

(1)  D2 opened the Kingsway A/C and Everbright A/C to pursue personal investment, and she authorised Yik to operate the accounts for convenience as she was resident in the Mainland[2];

(2)  D3 authorised Yik to operate his securities accounts for convenience, as he was resident in Mainland and he thought that Mainland laws did not allow him (who worked in financial industry) to invest in listed shares in Hong Kong; and he was not familiar with the operations of Hong Kong securities accounts (D2’s WS §§6-8; D3’s WS §6)

(3)  Since 2010, D3 had been in charge of the management of D2’s securities accounts and his own securities accounts at Kingston Securities Limited (“Kingston”) and UOB.  It was only in early April 2016 when he had to visit Jiangxi Province that D3 authorised Yik to operate his UOB A/C [3];

(4)  D2/D3 together with their relatives (not included Yik) and friends contributed RMB equivalent to HK$12.65 million (“Family Funds”) to D3 for investment purpose.  The Family Funds were transferred to Yik’s bank account in the Mainland who then arranged middlemen to remit the same to Yik’s bank accounts in Hong Kong[4];

(5)  D3 identified TeleEye shares as an investment target through his own research[5];

(6)  D2/D3 “had no knowledge or grounds to suspect and/or believe that [Yik] was a connected person to TeleEye”.  Nor did they have any knowledge about the Takeover negotiations between March and April 2016 until it was published on 14 April 2016[6];

(7)  D2/D3 “had never received any information in relation to the Takeover, from [Yik] or otherwise”[7]; and

(8)  Yik did not have a share in the profits made by the acquisition and sale of TeleEye shares trade through D2/D3’s A/Cs[8]. 

B.      EVIDENCE

B1.    Transfer Notes

8.  At the pre-trial review held on 29 March 2021, only the SFC appeared and directions were given on the conduct of the trial.  Shortly before the trial on 19 August 2021, D2/D3 filed Notices to Act in Person. 

9.  On 1 September 2021, the SFC voluntarily provided Chinese translation of the Opening to D2/D3.  In response, D2/D3 by their letter dated 3 September 2021 claimed that until they read the Opening, they did not know that their former solicitors had not provided copies of the bank transfer notes evidencing the investors’ contributions to the Family Funds to the SFC and, in the limited time available, they were only able to find 8 transfer notes (collectively “Transfer Notes”) and enclosed them to the letter. 

10.  As the Transfer Notes were only disclosed at the eve of the trial, on Day 1, Ms Rachel Lam SC (leading Ms Jasmine Cheung), counsel for the SFC, opposed D2/D3’s attempt to admit such documents as evidence on the grounds that there had been inordinate delay on the part of D2/D3 in disclosing the Transfer Notes and the SFC has been prejudiced by such delay as it would not be able to carry out any meaningful investigation in relation to the Transfer Notes including the person whose name has never featured in the Defence or the WS of D2/D3.  I refused to allow D2/D3 to admit the Transfer Notes as evidence. 

11.  However, under cross-examination, D2 and D3 repeatedly refer to the Transfer Notes as evidence that their friends and relatives had contributed to the Family Funds and allege that they had provided the Transfer Notes to their former solicitors but the latter decided not to disclose them to the SFC (“Allegation”).  In view of the seriousness of the Allegation and the weight which D2/D3 seek to place on the Transfer Notes, on Day 4, this Court decides to re-open the question whether to admit the Transfer Notes as evidence and explains to D2/D3 that if they maintain the Allegation, the Court may require their former solicitors to give evidence in response to such Allegation, and D2/D3 will be taken as having waived the privilege (if any) attached to the communications with their former solicitors regarding the Transfer Notes.  Alternatively, the Transfer Notes will be considered on a de bene esse basis or be admitted as evidence, subject to the parties’ submissions on the question of weight.   

12.  After considering the matter further, D2/D3 confirm that they do not maintain the Allegation against their former solicitors but urge the Court to admit the Transfer Notes as evidence.  Ms Lam indicates that the SFC is “neutral” and eventually confirms that the SFC does not oppose the admission of the Transfer Notes but will submit that no weight should be given to them.    

B2.    Factual evidence

13.  At trial, D2/D3 appear in person through video conferencing facilities.  Yik is absent. 

14.  The SFC calls 9 factual witnesses to give evidence on its behalf.  These witnesses and their roles in the events relevant to this action are as follows:

(1)  Ms Wong Mei Po, Associate Director of the SFC, responsible for investigating the dealings of TeleEye shares during the period from 1 February to 30 April 2016;

(2)  Ms Ho Siu Yin Louisa (“Louisa”) was an account executive of Kingsway on a semi-retired basis from April 2012;

(3)  Ms Lam Ka Ling (“Lam”) was until 2017 the senior sales manager of Everbright;

(4)  Mr Chung Chi Chuen Ryan (“Ryan”) was the project leader at Huatai Financial Holdings (Hong Kong) Ltd (“Huatai”), responsible for exploring principal investment or financing opportunities with respect to the potential Takeover;

(5)  Mr Fung Long Chuen Ronny (“Ronny”) was one of the 2 employees of Chinese Energy Holdings Limited (“Chinese Energy”) from October 2015 to July 2016;

(6)  Mr Tong Wai Kit Raymond (“Raymond”) was the Chief Financial Officer of Chinese Energy from December 2015 to 21 June 2016;

(7)  Ms Chan San Linda (“Linda”) was a senior dealer of UOB;

(8)  Mr Chen Haining (“Chen”) was until completion of the Takeover, the beneficial owner of 50.07% issued shares in TeleEye.  He has been an executive director and Chief Executive Officer of Chinese Energy since 9 May 2016 and 12 August 2016 respectively; and

(9)  Mr Tse Tik Yang Denis (“Denis”) was (and still is) the founder and managing principal of Asia-IO Advisors Limited (“Asia-IO”).

15.  The evidence of these factual witnesses has not been challenged by D2/D3 during cross-examination, and I accept the evidence stated in their respective WS.

16.  Except the background facts stated in section C, the evidence of D2/D3 is disputed by the SFC, and both of them are subject to extensive cross-examination by Ms Lam.  The assessment of D2/D3’s evidence will be dealt with as part of the analysis of the issues in section E below. 

B3.    Expert evidence

17.  As regards expert evidence, by order dated 24 January 2019, Master Hui gave leave to the SFC and D2/D3 to adduce expert evidence on the following issues (“Expert Issues”):

“Whether, during the period from 15 February 2016 to 14 April 2016, the information regarding the intended Takeover (as pleaded at [§§8-20 of the ASOC]) constituted specific information about [TeleEye] and/or the shares of TeleEye that is not generally known to the persons who are accustomed or would be likely to deal in the shares of TeleEye, but would if generally known to them, be likely to materially affect the price of the shares of TeleEye during that period, limited to one expert for the Plaintiff and one expert for [D2 and D3]”

18.  The SFC relies on the evidence of Ms Melissa Brown (“Brown”) who prepared an opinion dated 3 April 2019 (“Brown 1^st”) and a joint expert statement alongside with Mr. Cheng Kai Sum (“Cheng”), the expert engaged by D2/D3, dated 30 July 2019 (“JES”). 

19.  Brown worked in a diverse range of investment roles for 34 years.  She had 18 years’ experience in equity analysis and another 5 years in private equity investment while employed by international investment banks including Barclays, JP Morgan and Citigroup during which she carried out extensive analyses of listed stocks across Asia including those shares listed on HKEx.  She has been licensed by the SFC as a dealers’ representative.  She also holds licenses 7 (general securities representative), 16 (supervisory analyst), and 24 (general securities principal) issued by the National Association of Securities Dealers/Financial Industries Regulatory Authority of the USA.  I am satisfied that Brown has the requisite expertise to give evidence on the Expert Issues. 

20.  Brown attends Court to give evidence.  She adopts Brown 1^st and JES as her evidence and has been cross-examined by D3 (on behalf of himself and D2) briefly on 2 aspects, namely (1) her opinion that by 29 February 2016, the Subject Information (as defined in §88 below) became “specific information” and (2) her opinion that the Subject Information was price sensitive.  It is clear from the way the questions are put to Brown that the bases for challenging her opinion on these 2 aspects are either speculative or wholly without factual foundation.   

21.  I find that the opinions of Brown are sufficiently supported by the documents available to her (which are documents disclosed by the parties in this action) and the reasons stated in Brown 1^st, JES and her oral evidence, and are fairly expressed and well balanced.  I accept the expert evidence of Brown. 

22.  Although D2/D3 adduce the opinion of Cheng dated 13 May 2019 and the JES insofar as it contains the opinion of Cheng as evidence on the Expert Issues, they fail to secure the attendance of Cheng to give evidence at trial.  As Ms Lam submits, the combined effect of Order 38 rr.36 and 43 of the Rules of the High Court is that unless the Court directs otherwise, the maker of the report is required to attend the trial and adopt his report as evidence.  There is no direction or order of the Court to adopt the expert reports without calling the makers of such reports to give evidence at trial.  As Cheng does not attend the trial to adopt his opinion as his evidence, it does not form part of the expert evidence at trial.     

C.      BACKGROUND FACTS

23.  The following facts are taken from the Agreed Facts[9] or the WSs of the factual witnesses called by the SFC whose evidence not been challenged by D2/D3 at trial.   

C1.    Relevant persons and entities

24.  TeleEye was incorporated in the Cayman Islands. Its shares have been listed on the GEM Board of HKEx (stock code 8051).  TeleEye through its subsidiaries engaged in the business development and sales of audio and video monitoring systems.

25.  Yik was an executive director of Chinese Energy from 17 August 2015 to 12 August 2016, a company listed on the GEM Board of HKEx (stock code 8009).  She attended a training on insider dealing on 11 September 2015 (alongside with Chen).

26.  Chen through a corporate vehicle, Fast Upgrade Limited (“Fast Upgrade”), held 419,060,100 shares in TeleEye, equivalent to 50.07% of its issued shares (“Subject Shares”).  The Subject Shares had since 27 November 2015 been charged as security for a HK$90 million loan advanced by Chinese Energy’s wholly-owned subsidiary, First Top Finance Limited (“First Top”), to Fast Upgrade. 

27.  Foxconn (Far East) Limited (“Foxconn”) is a well-known collaborator with and contractor for Apple Inc.  It was (and still is) a wholly-owned subsidiary of Hon Hai Precision Industry Co. Ltd (“Hon Hai”), a company listed on the Taiwan Stock Exchange (Stock Code: 2317).  Hon Hai is one of the largest information technology companies in the world.

28.  D2 is the niece of Yik. D2 and D3 got married in 2010 and, since then, have been residing in Shenzhen.

C2.    Takeover

29.  The Takeover concerned the sale and purchase of the Subject Shares from Chen/Fast Upgrade to Foxconn. 

30.  The key individuals involved in the Takeover were as follows.

(1)  On Foxconn’s side:

(a)  Denis was advisor to Foxconn.  He played an active role throughout the negotiations.

(b)  Huatai was financial advisor to Foxconn for the Takeover.  Ryan met with Yik in February 2016 and informed Denis that TeleEye was a potential acquisition target.

(2)  On Fast Upgrade’s side:

(a)  Yik was the representative of Fast Upgrade/Chen and played an active role throughout the negotiations with Foxconn.

(b)  Chen only participated in direct negotiations with Foxconn towards the later stage of the negotiations.

31.  In August 2015, Denis became aware that Foxconn was interested in acquiring a Hong Kong or Mainland listed entity. 

32.  In February 2016, Denis started to gather information from the market about listed companies available for sale, and learnt from Ryan that TeleEye was available for sale.  This followed from a meeting in early February 2016 between, inter alios, Yik and Ryan, and a telephone call between them in mid-February 2016 during which Yik informed Ryan that TeleEye was a potential acquisition target and that 50.1% to 75% of its shares were available for acquisition.

33.  On 22 February 2016, a meeting was held between, inter alios, Yik as representative of TeleEye and Denis/Ryan as representatives of Foxconn, after which Denis emailed a non-disclosure agreement (“NDA”) addressed to TeleEye to Yik upon her request.  The preamble of the NDA made clear that the agreement was in consideration of TeleEye agreeing to make available certain confidential information to enable the counterparty to evaluate the proposed investment in TeleEye.

34.  Two days later, on 24 February 2016, Foxconn approved an initiative to acquire a listed company in Hong Kong.  By that time, Denis had communicated to Yik that Foxconn was serious about the Takeover and informed her of Foxconn’s track record in a previous acquisition of Maxnerva Technology Services Ltd (Stock Code: 1037) which was completed in November 2015. 

35.  On 28 February 2016, Foxconn’s legal advisors, Messrs. Jones Day (“Jones Day”), circulated by email the first draft of a sale and purchase agreement (“SPA”) to Denis. In this draft SPA:

(1)  Fast Upgrade was described as vendor, Chen as guarantor and TeleEye as acquisition target; and

(2)  The shares to be sold would form a substantial stake in TeleEye, given that part of the vendor’s undertakings contemplate all existing directors, secretaries and authorised representatives to resign from TeleEye and the purchaser to nominate persons for those positions (clause 7.1(e), (f), (g)), and the purchaser shall make a general offer as required by the Takeovers Code (clause 9).

36.  On 29 February 2016, Denis circulated specific comments on the draft SPA to, inter alios, Yik and Jones Day.

37.  In the meantime, in mid to late February 2016, Yik informed Chen that a potential buyer was interested in acquiring TeleEye.

38.  On 6 March 2016, Yik provided her comments on the draft SPA, which were forwarded by Denis to Jones Day and Ryan. 

39.  On 9 March 2016, a meeting took place between, inter alios, Yik, Chen, Denis and Ryan at which Chen indicated that he expected the Takeover to progress as soon as possible.

40.  On 21 March 2016, another meeting took place between inter alios Yik, Denis, Jones Day and Fast Upgrade’s legal advisers, Messrs. Kwok Yih & Chan (“KYC”), during which the parties negotiated on the terms of the draft SPA, and Denis provided a ballpark estimate of the price range for purchasing the Subject Shares.

41.  On 22 March 2016, Denis provided proof of Foxconn’s financial resources as requested by Yik. 

42.  On 23 March 2016, Denis introduced Foxconn to Chen at a meeting attended by Yik.  During the meeting, Denis introduced the representatives of Foxconn to Chen. 

43.  On 25 March 2016, Denis recommended Huatai to Foxconn as financial advisor in respect of the Takeover.

44.  On 26 March 2016, KYC circulated by email their comments on the revised draft SPA to Jones Day, and copied to Yik “in the interest of time”:

(1)  the email was titled “Gem Takeover – 股权协议”; and

(2)  the revised draft SPA stated that the purchaser was “Hon Hai’s designated entity”, the sale shares represented 50.07% of the issued share capital of TeleEye, and the total purchase price would be HK$230,613,582 based on the price of HK$0.55 per share.

45.  On 29 March 2016, Denis informed Huatai that Foxconn intended to acquire around 50% of TeleEye from Chen. 

46.  On 31 March 2016, Jones Day replied with its comments on the revised draft SPA, which was copied to inter alios Yik and Denis, and circulated to its client in the interest of time.  Foxconn was identified as the purchaser in the revised SPA.  KYC commented on the revised draft SPA on the same day.

47.  On 7 April 2016, a draft joint announcement concerning the Takeover was circulated by Jones Day.

48.  On 8 April 2016:

(1)  Yik introduced Denis to Mr. Henri Yu of Messrs. L&Y Law Office, the legal advisors of TeleEye.  Thereafter, a teleconference was held between inter alios Yik, Mr. Louis Woo and Mr. John Hui of Foxconn, Chen and Denis;

(2)  multiple emails concerning details of the revised draft SPA (with Yik being copied) were exchanged between Jones Day and KYC;

(3)  various emails were exchanged in which an internal deadline of 3 p.m. on 9 April 2016 was discussed, with the aim of finalising all documents for Foxconn to run its internal procedure on 10 April 2016; and

(4)  WeChat messages were exchanged between Yik, Denis and Henri Yu, in which the vendor wanted to have the SPA signed and the consideration remitted to Huatai on 8 April 2016.

49.  On 9 April 2016, Yik sent the closing timetable and closing obligations to KYC, which was copied to Jones Day.  This was said to reflect discussions with Foxconn earlier that day.  The closing timetable anticipated the SPA would be signed on 11 April 2016.

50.  On 11 April 2016 at 2:16 p.m., it was confirmed by way of WeChat messages (which Yik received) that Foxconn had formally completed its internal approval, and the signing would take place at Jones Day’s office on 12 April 2016. By an email sent to Yik at 5:23 p.m., Denis said that in view of the time for signing the SPA, their solicitors suggested TeleEye to consider suspending trading of its shares at an appropriate time the next day.

51.  On 12 April 2016, Foxconn and Fast Upgrade agreed on the final price of HK$0.55 per share for the sale and purchase of the Subject Shares.  The SPA was executed by Foxconn as purchaser, Fast Upgrade as vendor and Chen as guarantor after close of business on the same day.

C3.    Ds’ bank / securities accounts

52.  According to the documents obtained by the SFC, Ds maintained various bank accounts at Hongkong and Shanghai Banking Corporation Limited (“HSBC”) and Standard Chartered Bank Limited (“SCB”) as well as securities accounts at Kingsway, Everbright, UOB, BOCI Securities Limited (“BOCI”), Kingston and Get Nice Securities Limited (“Get Nice”) in Hong Kong.  In addition, Yik and D3 each maintained a bank account at Agricultural Bank China, Shenzhen branch (“ABC”).  Details of the accounts are as follows:

Name	Date opened	Account
Yik	18/3/1991 20/5/1991 12/3/1993 30/12/2005 6/8/2010 28/6/2011 21/8/2015 13/5/2015	HSBC bank accounts (10 accounts)
	23/6/2000	Kingsway cash securities account
	14/7/2000	Kingsway margin securities
	4/5/2015	Everbright margin securities account
	Unknown	ABC bank account
	25/8/2014 2/3/2015 6/3/2015 19/3/2015	SCB bank accounts (5 accounts)
D2	24/9/2007	Kingsway A/C (margin securities account)
	4/1/2015	Everbright A/C (margin securities account)
	2/1/2015	HSBC bank account
D3	23/12/2014	BOCI securities account
	2/1/2015	HSBC bank account
	14/8/2015	UOB A/C (margin securities account)
	10/9/2015	Kingston margin securities account
	21/9/2015	Kingsway cash securities account
	22/9/2015	Get Nice securities account
	Unknown	ABC bank account

53.  All the securities accounts at Kingsway were handled by Louisa, who confirms that:

(1)  Yik introduced D2 to open a margin securities account. By an authorisation form dated 2 November 2007, D2 authorised Yik to operate her account and declared that Yik was her friend;

(2)  When D3 opened the cash securities account, he wanted to authorise Yik to operate his account but did not complete the authorisation or carry out any trade through his account;

(3)  Yik was the only person who liaised with, and arranged all the funds deposited into Kingsway for settlement of the stocks purchased through her and D2’s accounts;

(4)  There was stock trading in Kingsway A/C from November 2007 to April 2010.  The account then became inactive for 5 years until 14 September 2015 when Yik placed orders to purchase shares in Lee & Man Handbags Holding Ltd (stock code: 1488) (“LM Handbags”). The HK$625,000.05 required for the purchase was deposited by Yik into Kingsway A/C.

54.  As for the accounts at Everbright, according to Lam, the executive who served the accounts from 13 September 2015:

(1)  Yik accompanied D2 to open a margin securities account.  By an authorisation form dated 18 February 2015, D2 authorised Yik to operate the account and declared that Yik was her friend;

(2)  On 18 August 2015, some shares in Chinese Energy were purchased through Everbright A/C which resulted in a negative balance in the account.  It was Yik who arranged HK$1,000,000 to be deposited into Everbright A/C on the same day; and

(3)  D3 tried to open a securities account before D2’s account was opened, but the process was not completed as he was not able to provide proof of his address.

55.  As regards the UOB A/C, according to Linda, who served the account:

(1)  Yik accompanied D3 to open a margin securities account. D3 asked about the procedure for authorising a third party to operate his account and was provided with relevant information;

(2)  On 23 September 2015, 4,400,000 shares in LM Handbags were transferred from D3’s account at Kingston to UOB A/C;

(3)  Thereafter, there was no trading activity in the account for 6 months until 18 March 2016 when D3 sold all the LM Handbags shares and realised HK$6,137,865.68 from the sale;

(4)  On 16 March 2016, D3 called Linda to enquire about the process for authorising a third party to operate his account and collecting share certificates on his behalf.  At the same time, while D3 was at her office, Yik asked Ronny to assist D3 in filling out the authorisation form in favour of her.  At D3’s request, Linda explained to Ronny how to complete the physical stock withdrawal form and the authorisation form for D3; and

(5)  By an authorisation form dated 6 April 2016, D3 authorised Yik to give written and oral instructions in relation to trading in UOB A/C and declared that Yik was his friend. 

C4.    Ds’ dealings in TeleEye shares

56.  From 1 March 2016 to 12 April 2016, a total of 22,720,000 TeleEye shares were purchased through D2/D3’s A/Cs at an average cost of HK$0.4295 per share as follows:

Date	Securities Account	No. of Shares	Price (HK)	Transaction Cost (HK)
1/3/2016	Kingsway A/C	30,000	$0.335	$10,162
3/3/2016	Kingsway A/C	1,000,000	$0.361	$361,910
4/3/2016	Kingsway A/C	780,000	$0.405	$317,074
14/3/2016	Kingsway A/C	1,430,000	$0.428	$613,884
17/3/2016	Kingsway A/C	9,840,000	$0.420	$4,145,517
31/3/2016	Everbright A/C	1,630,000	$0.446	$728,871
	UOB A/C	3,080,000	$0.434	$1,342,124
1/4/2016	UOB A/C	1,920,000	$0.435	$837,761
11/4/2016	Kingsway A/C	2,800,000	$0.461	$1,293,721
12/4/2016	Kingsway A/C	210,000	$0.509	$107,129
Total		22,720,000	--	$9,758,153

57.  Yik placed all the buy orders for the TeleEye shares purchased through Kingsway A/C and Everbright A/C.

58.  As for the TeleEye shares purchased through UOB A/C, the buy order was placed by D3 on 31 March 2016 but only 3,080,000 shares were purchased on that day.  On 1 April 2016, D3 asked UOB to call Yik to discuss whether the remaining buy order had been processed, and UOB subsequently confirmed to Yik that D3 had acquired a total of 5,000,000 TeleEye shares. 

59.  On 12 April 2016 at 2:00 p.m., trading in TeleEye shares was suspended and the price closed at HK$0.58 per share.  TeleEye announced that trading was halted pending release of an announcement pursuant to the Codes on Takeovers and Mergers, which is inside information in nature. 

60.  On 14 April 2016, Foxconn and TeleEye jointly announced the Takeover (“Joint Announcement”). 

61.  On 15 April 2016 at 9:00 a.m., trading in TeleEye shares resumed and the price closed at HK$0.99 per share.

62.  Between 15 April 2016 and 20 May 2016, Yik placed all the orders to sell 15,650,000 TeleEye shares in D2/D3’s A/Cs at an average price of HK$1.259 per share, as follows:

Date	Securities Account	No. of Shares	Price (HK)	Sale Proceeds (HK)
15/4/2016	Kingsway A/C	1,480,000	$1.133	$1,671,441
18/4/2016	UOB A/C	2,550,000	$1.096	$2,783,922
19/4/2016	UOB A/C	100,000	$1.400	$139,495
22/4/2016	Everbright A/C	1,200,000	$1.465	$1,751,536
	UOB A/C	1,300,000	$1.474	$1,909,089
25/4/2016	Everbright A/C	200,000	$1.615	$321,812
	UOB A/C	300,000	$1.610	$481,258
26/4/2016	Kingsway A/C	1,120,000	$1.437	$1,604,248
	Everbright A/C	50,000	$1.400	$69,743
	UOB A/C	750,000	$1.444	$1,078,794
27/4/2016	Kingsway A/C	990,000	$1.255	$1,239,074
28/4/2016	Kingsway A/C	1,210,000	$1.205	$1,453,912
29/4/2016	Kingsway A/C	1,450,000	$1.226	$1,772,926
3/5/2016	Kingsway A/C	220,000	$1.222	$268,071
4/5/2016	Kingsway A/C	1,780,000	$1.284	$2,278,367
17/5/2016	Kingsway A/C	600,000	$0.935	$559,274
20/5/2016	Kingsway A/C	350,000	$0.900	$314,031
	Total	15,650,000	--	$19,696,993

63.  If one adopts the average cost of HK$0.4295 per share, Ds made profits in the aggregate amount of HK$12,975,318 from their purchase and sale of 15,650,000 TeleEye shares (“Profits”).

C5.    Funds flow

64.  According to the documents obtained by the SFC from the banks and the securities companies, between 18 August 2015 and 5 April 2016, Yik transferred a total amount of HK$9,668,000 to D2’s bank/securities accounts, and HK$2,000,000 and RMB8,000,000 to D3’s bank/securities accounts, details as follows:

Date	From account	To account	Amount
18/8/2015	Yik’s HSBC	D2’s HSBC à Everbright A/C	HK$1,000,000
6/9/2015	Yik’s ABC	D3’s ABC	RMB8,000,000
14/9/2015	Yik’s HSBC	D3’s HSBC à D3’s Kingston	HK$5,000,000
15/9/2015	Yik’s HSBC	Kingsway A/C	HK$4,000,000
2/10/2015	Yik’s HSBC	Kingsway A/C	HK$2,300,000
7/10/2015	Yik’s HSBC	Kingsway A/C	HK$1,000,000
7/3/2016	Yik’s HSBC	Kingsway A/C	HK$563,000
22/3/2016	Yik’s HSBC	Kingsway A/C	HK$370,000
5/4/2016	Yik’s HSBC	Everbright A/C	HK$435,000
5/4/2016	D3’s HSBC	Yik’s HSBC	(HK$3,000,000)

65.  The following sums were withdrawn from D2/D3’s A/Cs:

(1)  UOB A/C: on 5 May 2016, Yik called UOB and arranged for withdrawal of HK$7,348,042.43 from  UOB A/C.  The entire amount was transferred to D3’s HSBC account on the next day. 

(2)  Kingsway A/C: D2 signed a withdrawal slip dated 16 February 2017 directing Kingsway to transfer HK$6,105,024.38 remaining in the account to her SCB account.

(3)  Everbright A/C: On 11 May 2016, D2 instructed Everbright to transfer HK$2,140,000 to her HSBC account.     

C6.    Investigation by the SFC and commencement of action

66.  In April 2016, the SFC began to investigate Ds’ dealings in TeleEye shares.  On 25 May 2016, the SFC searched the office of Chinese Energy and TeleEye as well as Yik’s home.  Notices were issued to various persons under s.183 of the SFO throughout 2016 to 2018.   

67.  The SFC’s attempts to contact Yik were unsuccessful.  Yik left Hong Kong on 14 August 2016 and closed her accounts at SCB and Hang Seng Bank.  She also reduced the assets in her accounts at HSBC from HK$2,917,470.75 (as at 28 May 2016) to HK$35,999.97 (as at 29 August 2016). 

68.  Despite repeated invitations by the SFC on 27 May 2016, 22 July 2016 and 3-4 August 2016, D2/D3 did not attend any interview with the SFC.

69.  On 30 September 2016, the SFC commenced this action and applied for an injunction over Ds’ assets in Hong Kong.  At the hearing of the summons on 27 January 2017, DHCJ Anson Wong SC granted a Mareva injunction over Yik’s assets in Hong Kong up to HK$25,899,750.  As for D2/D3, they gave an undertaking to pay a total amount of HK$12,949,875 (equivalent to the Profits) into Court and no injunction was granted against them.

D.      APPLICABLE PRINCIPLES

D1.    Jurisdiction and standard of proof

70.  The SFO creates 2 procedures for penalising various forms of market misconduct including insider dealing which are mutually exclusive (see s.283).  One route is a criminal prosecution under Part XIV of the SFO and the other route is civil proceedings under Part XIII before the Market Misconduct Tribunal (“MMT”).  In addition, there are civil remedies for redressing the wrongs done as a result of such market misconduct in that s.305(1) confers a right on a person to sue for damages while s.213 gives a right to the SFC to apply for relief stipulated in s.213(2).  The nature of the remedies provided under s.213 has been explained by Lord Hoffmann NPJ in SFC v Tiger Asia Management LLC and others (2013) 16 HKCFAR 324 §16, in this way:

“…. the remedies provided under s 213 serve a different purpose from the penalties which can be imposed by a criminal court or the MMT. The latter are imposed in the general public interest, avowedly to punish in the case of criminal sanctions and, in the case of the MMT, as near as one can get to punishments without running the risk of the proceedings being categorized as criminal for the purposes of arts 10 and 11 of the Bill of Rights: see Koon Wing Yee v Insider Dealing Tribunal (2008) 11 HKCFAR 170. Section 213, on the other hand, provides remedies for the benefit of parties involved in the impugned transactions. They include injunctions and the appointment of receivers to secure property with a view to recovery by the victims of market misconduct, orders that particular transactions be unwound, orders declaring particular transactions to be void or voidable. In these proceedings the SFC acts not as a prosecutor in the general public interest but as protector of the collective interests of the persons dealing in the market who have been injured by market misconduct. Proceedings under s 213 are the public law analogue of actions for damages by individuals under s 305 rather than a substitute for a criminal prosecution or proceedings before the MMT. They are plainly civil proceedings and therefore do not attract the protection accorded to criminal defendants” (underlined added)

71.  The Court of First Instance has jurisdiction under s.213 to determine whether a defendant has contravened the “relevant provisions” [10] and to make final orders under s.213(2) including a declaration that there has been a contravention of the prohibition.  The relief under s.213 is entirely free-standing, and is not contingent or conditional on there being any prosecution or MMT proceedings (SFC v Tiger Asia Management LLC and others [2012] 2 HKLRD 281at §§16, 20-24, per Tang VP (as he then was); SFC v Tiger Asia Management LLC and others (2013) 16 HKCFAR 324 at §§11-14, 17, 22-23, per Lord Hoffmann NPJ). 

72.  As submitted by Ms Lam, although the standard of proof is civil standard, where serious wrongdoing is involved, the inferences must be compelling and the Court should refrain from drawing inferences on a bare or mere balance of probabilities (SFC v Young Bik Fung and others [2016] 1 HKLRD 1249,§§84-87, per Anthony Chan J).  The principles on drawing inferences from circumstantial evidence are discussed in the same judgment at §§88-91.  In particular, the following passage in R v Exall (cited in Young Bik Fung, §88) is apposite:

“It has been said that circumstantial evidence is to be considered as a chain, and each piece of evidence as a link in the chain, but that is not so, for then, if any one link broke, the chain would fall. It is more like the case of a rope comprised of several cords. One strand of the cord might be insufficient to sustain the weight, but three strands together might be quite of sufficient strength.

Thus it may be in circumstantial evidence – there may be a combination of circumstances, no one of which would raise a reasonable conviction, or more than a mere suspicion; but the whole taken together may create a conclusion of guilt with as much certainty as human affairs can require or admit of.”

D2.    Elements of insider dealing under s.270(1)(a)(i) and 291(1)(a)

73.  Sections 270(1)(a)(i) and 291(1)(a) of the SFO[11] provide that insider dealing is an offence.  The essential elements are as follows:

(1)  a person is connected with a listed corporation (“Connection Element”);

(2)  the person has information which he knows is inside information in relation to the listed corporation (“Information Element” and “Knowledge Element”); and

(3)  the person deals in the listed stocks of the listed corporation or their derivatives, or in the listed stocks of a related corporation of the corporation or their derivatives (“Dealing Element”).

74.  As the 2 sections are identical, in the following discussion, I will only focus on the provisions governing insider dealing under s.270(1)(a)(i) in Part XIII of the SFO. 

75.  As regards Connection Element, it is set out in s.247(1)[12] which provides as follows:

“…. a person shall be regarded as connected with a corporation if, being an individual -

(a) he is a director or employee of the corporation or a related corporation of the corporation;

(b) he is a substantial shareholder of the corporation or a related corporation of the corporation;

(c) he occupies a position which may reasonably be expected to give him access to inside information in relation to the corporation by reason of –

(i) a professional or business relationship existing between –

(A) himself, or his employer, or a corporation of which he is a director, or a firm of which he is a partner; and

(B) the corporation, a related corporation of the corporation, or an officer or substantial shareholder of either corporation; or

(ii) his being a director, employee or partner of a substantial shareholder of the corporation or a related corporation of the corporation;

(d) he has access to inside information in relation to the corporation and—

(i) he has such access by reason of his being in such a position that he would be regarded as connected with another corporation by virtue of paragraph (a), (b) or (c); and

(ii) the inside information relates to a transaction (actual or contemplated) involving both those corporations or involving one of them and the listed stocks of the other or their derivatives, or to the fact that the transaction is no longer contemplated; or

(e) he was, at any time within the 6 months preceding any insider dealing in relation to the corporation, a person who would be regarded as connected with the corporation by virtue of paragraph (a), (b), (c) or (d).” (underlined added)

76.  In so far as s.247(1)(b) is concerned, the meaning of “substantial shareholder” is defined in s.247(3)[13] as “a person who has an interest in 5% or more of the total number of shares comprised in the relevant share capital of the corporation”.  As for “related corporation”, it is defined in Schedule 1, Part 1, s.3.  In essence, 2 corporations are related if one is a holding company of the other, a subsidiary of the other, or a subsidiary of the holding company of the other, or when both are controlled by the same individual.

77.  The test under s.247(1)(c)[14] is an objective one, namely, what other people may reasonably expect of that person by virtue of his position (SFC v Young Bik Fung and others, §256). 

78.  There are 3 components to Information Element.

(1)  First, “inside information” is defined in s.245[15]:

“means specific information that –

(a) is about –

(i) the corporation;

(ii) a shareholder or officer of the corporation; or

(iii) the listed stocks of the corporation or their derivatives; and

(b) is not generally known to the persons who are accustomed or would be likely to deal in the listed securities of the corporation but would if generally known to them be likely to materially affect the price of the listed securities” (underlined added)

(2) Second, “specific information” is information which possesses sufficient particularity to be capable of being identified, defined and unequivocally expressed. It is to be contrasted with mere rumour, with vague hopes and worries or with unsubstantiated conjecture. However, what begins as a vague hope or worry may over time acquire sufficient substance and particularity to be properly defined as specific information. Whether and when such a transformation takes place is a question of fact (SFC v Chan Pak Hoe Pablo [2011] 5 HKC 484 at §§27, 29-31, per Macrae J (as he then was)).

(3) Third, “materially affect the price of listed securities”:

(a) The test is a hypothetical one, the Court must ask itself whether had the information been generally known to the investing public on the day the insider traded it would have been likely to have had a material impact on the company’s share price. In this regard, evidence on how investors reacted once the information became public knowledge often provides the answer. However, care must be taken to ascertain whether the investors’ response was attributable to the information released, or whether it was attributable to other extraneous events or considerations (SFC v Chan Pak Hoe Pablo at §42). The test is applied with reference to the ordinary reasonable investor (IDT[16] Report, Chee Shing Holdings Ltd, 27 June 2001 at p.43).

79.  As for Knowledge Element:

(1)  Actual knowledge at the time the insider traded is required.  It is well established that actual knowledge includes “blind eye knowledge” or “wilful blindness”, which requires a suspicion or belief that the relevant facts do exist (which must be firmly grounded and targeted on specific facts), and a deliberate decision to avoid confirmation of the facts in whose existence there is good reason to believe (Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd [2003] 1 AC 469, §116, per Lord Scott; Twinsectra Ltd v Yardley & Ors [2002] AC 164, at 195, per Lord Millett).

(2)  The test of knowledge is a subjective one.  It is established by admission or inference.  One has to examine the surrounding circumstances and consider what events occurred before and after the material time to see if they throw any light on what the insider truly knew (MMT Report: Asia Telemedia Limited, 26 November 2015, at §221).

(3)  Where, as here, the Court is invited to reach a conclusion of serious misconduct as an inference, the conclusion is not to be reached by conjecture nor on a mere balance of probabilities.  It is to be plainly established as a matter of inference from proved facts (HKSAR v Lee Ming Tee & SFC (2003) 6 HKCFAR 336, at §72, Sir Anthony Mason NPJ). 

80.  In relation to Dealing Element, under s.249[17] of the SFO, a person shall be regarded as dealing in listed securities if, whether as principal or agent, he sells, purchases, exchanges, or subscribes for, or agrees to sell, purchase, exchange or subscribe for, any listed securities or acquires or disposes of, or agrees to acquire or dispose of, the right to sell, purchase, exchange or subscribe for, any listed securities.

D3.    Elements of insider dealing under s.270(1)(e)(i)

81.  The elements of the offence of insider dealing under ss.270(1)(e)(i)[18] of the SFO are as follows:

(1)  The person (“tippee”) has information which he knows is inside information in relation to the listed corporation;

(2)  The person received the information, directly or indirectly, from a person (“tipper”) whom he knows is connected with the listed corporation;

(3)  The tippee knows or has reasonable cause to believe that the tipper held the information as a result of being connected with the listed corporation; and

(4)  The tippee deals in the listed securities of the corporation or their derivatives, or in the listed securities of a related corporation of the corporation or their derivatives.

82.  The first and second elements can be inferred from circumstantial evidence following the approach discussed in HKSAR v Lee Ming Tee.  In the context of the insider dealing, the circumstantial evidence may include factors such as (1) the tippee’s background or previous share trading, (2) his access to information, (3) his relationship with the tipper, (4) timing of contact between the tipper and the tippee, (5) timing of the trades, (6) pattern of the trades; and (7) attempts to conceal either the trades or the relationship between the tipper and the tippee (SFC v Young Bik Fung and others at §§89-91, per Anthony Chan J).

D4.    Relief under s.213

83.  The relief under s.213 is very wide.  In the context of insider dealing, the Court may make any order specified in s.213(2) where a person has:

(1)  contravened any of the relevant provisions;

(2)  aided, abetted, or otherwise assisted, counselled or procured a person to commit any such contravention;

(3)  induced, whether by threats, promises or otherwise, a person to commit any such contravention;

(4)  directly or indirectly been in any way knowingly involved in, or a party to, any such contravention; or

(5)  attempted, or conspired with others, to commit any such contravention

(“relevant wrongdoing”).

84.  In addition, s.213(1) is expressly subject to s.213(4), which provides that before making an order under s.213(1), the Court shall satisfy itself that it is desirable that the order be made, and that the order will not unfairly prejudice any person.

(1)  As regards “desirable that the order be made”, the Court will focus on whether the order would be consistent with and advance, generally, the objects and purpose of the SFO and, more specifically, the role of the offence provision and the role of the remedial orders in deterring the conduct of insider dealing and ensuring that no one benefits from it (SFC v Young Bik Fung [2018] 1 HKC 246 at §§96-97).

(2)  As for “not unfairly prejudice any person”, the focus is on the circumstances by which the wrongdoer came to be involved in the insider dealing and the impact the order will have on him.

(3)  Both limbs are general concepts, which do not lend themselves to definition or precise exposition.  A fairly broad brush approach has to be adopted where necessary (SFC v Qunxing Paper Holdings Co Ltd (No 2) at §56-57).

85.  The orders specified in s.213(2) of the SFO are:

(1)  An order restraining or prohibiting the occurrence or the continued occurrence of any of the relevant wrongdoings;

(2)  Where a person has been, or it appears that a person has been, is or may become, involved in any of the relevant wrongdoings, whether knowingly or otherwise, an order requiring the person to take such steps as the Court may direct, including steps to restore the parties to any transaction to the position in which they were before the transaction was entered into;

(3)  An order restraining or prohibiting a person from acquiring, disposing of, or otherwise dealing in, any property specified in the order;

(4)  An order appointing a person to administer the property of another person;

(5)  An order declaring a contract relating to any securities or an interest in any securities to be void or voidable to the extent specified in the order;

(6)  For the purpose of securing compliance with any other order made, an order directing a person to do or refrain from doing any act specified in the order; and

(7)  Any ancillary order which the Court considers necessary in consequence of the making of any of the orders.

86.  Further, the Court may, in addition to or in substitution for such order, make an order requiring the person to pay damages to any other person.   

87.  The width and flexibility of s.213 has been the subject of repeated judicial observations:

(1)  The range of remedies were designed to provide substantive relief to address specific types of wrongdoing identified in s.213(1) (i.e. relevant wrongdoings).  Specifically, s.213(2)(b) enables an order to be made that would restore all the parties to the transaction to their respective former position.  It is restitutionary in nature and, in conjunction with s.213(2)(c), would provide compensation to those who have sustained losses through the wrongdoing in question (SFC v C [2009] 4 HKLRD 315 at §§33-36, per Le Pichon JA).

(2)  Section 213 provides remedies for the benefit of the parties involved in the impugned transactions, with the SFC acting as protector of the collective interests of persons dealing in the market who have been injured by market misconduct (SFC v Tiger Asia Management LLC, at §16, per Lord Hoffmann NPJ).

(3)  The width of the section (specifically s.213(2)(b)) and of the powers it confers on the Court are characterised by their extreme flexibility and should not be judicially cut down (SFC v Qunxing Paper Holdings Co Ltd & Ors [2018] 1 HKLRD 1060 at §54, per Godfrey Lam J (as he then was); SFC v Tsoi Bun [2014] 2 HKLRD 1 at §12).

E.      ANALYSIS OF ISSUES

88.  It is the SFC’s case that the information about the intended Takeover, as described in section C2 above (“Subject Information”), was inside information[19]. 

89.  Although the SFC has not defined the period relevant to its case, it seems to me that only the period from 29 February 2016 to 12 April 2016 is relevant to SFC’s case (“Relevant Period”), as this was the period during which the Subject Information had not been made known to the public and the 22,720,000 TeleEye shares were purchased through D2/D3’s A/Cs. 

90.  Accordingly, the issues which require determination of the Court are:

(1)  Whether Yik was a connected person (section E1);

(2)  Whether the Subject Information was inside information during the Relevant Period (section E2);

(3)  Whether Yik knew that the Subject Information was inside information during the Relevant Period (section E3);

(4)  Whether Yik dealt in TeleEye shares during the Relevant Period (section E4);

(5)  Whether D2/D3 (and each of them) had the Subject Information which they knew was inside information in relation to TeleEye, and whether they received such inside information from Yik whom they knew was connected with TeleEye (section E5);

(6)  Whether D2/D3 knew or had reasonable cause to believe that Yik held the Subject Information as a result of being connected with TeleEye (section E6);

(7)  Whether D2/D3 dealt in TeleEye shares during the Relevant Period (section E7);

(8)  Whether D2/D3 were involved in or were parties to Yik’s contravention of the SFO by allowing Yik to trade through D2/D3’s A/Cs (section E8); and

(9)  Whether it is desirable for the Court to grant the relief sought by the SFC, and that such relief will not unfairly prejudice any person (section E9).

E1.    Whether Yik was a connected person

91.  In my view, there is ample evidence in support of the SFC’s contention that Yik was a person connected with TeleEye within the meaning of s.247(1)(c)(i) of the SFO:

(1)  As stated in §§32-36 above, from as early as February 2016, Yik already acted as a representative of TeleEye in the discussion with the representatives of Foxconn on the potential acquisition of a majority stake in TeleEye and was provided with a draft SPA which described Fast Upgrade as vendor and TeleEye as acquisition target. 

(2)  In addition, from late February 2016, Yik also acted as representative of Fast Upgrade/Chen in the negotiations with Foxconn’s representatives on the intended Takeover, and reported the progress of negotiations to Chen in person at TeleEye’s office or over the phone[20]. 

(3)  In her capacity as representative of Fast Upgrade/Chen, Yik provided comments on the draft SPA, attended all meetings with Foxconn’s representatives and was copied in to all emails concerning the draft SPA and the revisions thereto, the draft Joint Announcement, the closing time table and details on signing of the SPA and the Price for the sale and purchase of the shares in TeleEye throughout the period up to 12 April 2016 (see §§37-51 above).

(4)  Yik’s position as representative of TeleEye and Fast Upgrade/Chen constituted a business relationship between her and TeleEye, as well as a business relationship between her and Fast Upgrade/Chen. 

(5)  Yik’s intimate involvement throughout the negotiations with Foxconn gave her direct access to all inside information relating to the Takeover throughout the period from February 2016 up to 12 April 2016, when such information remained confidential to the parties and not available to the public.

92.  Moreover, by virtue of the fact that Yik had access to inside information in relation to TeleEye and the Takeover by reason of her being a representative of TeleEye and Fast Upgrade/Chen (as described in the preceding paragraph), she was a connected person within the meaning of s.247(1)(d)[21] of the SFO.

93.  Further, the SFC also relies on the fact that (1) Yik had access to inside information in relation to TeleEye by virtue of her position as a director of Chinese Energy, which is a “related company” of First Top (as holding company of First Top) and (2) the inside information related to a transaction involving both TeleEye and First Top, and contends that Yik was a connected person within the meaning of s.247(1)(d)[22] of the SFO.  I accept the contention, which is amply supported by the following undisputed evidence:

(1)  First Top held security in the form of a share charge dated 27 November 2015 over the Subject Shares and was the lender of a HK$90 million loan to Fast Upgrade.  The release of the share charge was one of the conditions precedent to completion of the SPA. 

(2)  In the final stages of negotiations, on 1 April 2016, Fast Upgrade was asked to send Jones Day, inter alia, the loan agreement, share charge, draft deeds of release of the share charge and draft board resolution approving the deed of release, and the same were sent to Jones Day. Jones Day also asked for a board resolution from First Top authorising the same.

(3)  It was contemplated that the deed of release of the share charge would be signed before the SPA, and the same was ultimately signed before the signing of the SPA on 11 April 2016.

E2.    Whether the Subject Information was inside information during the Relevant Period

94.  As stated in §78 above, there are 3 components to Information Element, and the burden is on the SFC to prove each of them.   

95.  The first and second components viz., (1) whether the Subject Information was “specific information” about TeleEye and the listed stocks in TeleEye, and (2) whether the Subject Information was not generally known to the persons who are accustomed to or would be likely to deal in the listed stocks of TeleEye (“Relevant Investors”) during the Relevant Period, are not in dispute[23].

96.  D2/D3 take issue with Brown’s opinion that the Subject Information became “specific information” by 29 February 2016, apparently on the bases that (1) Brown could not be sure whether the price of TeleEye shares would go up or down; (2) prior to 29 February 2016, there was no price sensitive issue which would affect the price of TeleEye shares; and (3) no legally binding agreement was signed (presumably in respect of the intended Takeover) by 29 February 2016. 

97.  As Brown explains in her oral evidence, her opinion is not based on any of the matters put to her by D3.  Rather, her opinion that the Subject Information became “specific information” by 29 February 2016 is premised on 3 “building blocks” namely, (a) the existence of a credible and identifiable target; (b) there being active and credible participants in the discussion; and (c) the key participants having taken steps to formalise the negotiations in a manner that is consistent with a view to progress on a potential transaction. 

98.  In my judgment, Brown’s opinion is well founded and should be accepted for the following reasons:

(1)  Her opinion is consistent with and supported by the undisputed evidence that by 29 February 2016, the parties involved in the negotiations of the intended Takeover (including Yik) were aware that (a) the subject matter of the intended Takeover was a majority stake in TeleEye; (b) the intended purchaser was Foxconn; (c) the intended seller was Fast Upgrade; (d) the rationale of the Price for acquisition of the shares in TeleEye; (e) the engagement of Jones Day as Foxconn’s legal advisers; (f) Jones Day prepared a draft SPA and circulated the same to, inter alios, Yik (as representative of Fast Upgrade/Chen) for her comments. 

(2)  As is clear from the definition of “specific information” under s.245 of the SFO, in determining whether the information in question was “specific information”, the Court would ask whether the information would “likely to materially affect the price of the listed stocks”.  There is no requirement that the information must relate to a legally binding agreement.

(3)  In any event, the fact that details of a proposed transaction (including price) were still under negotiation would not render the information to fall outside the meaning of “specific information” if the proposed transaction went beyond the exploratory stage of “testing the waters”, mere rumour or “fishing expedition” (SFC v Chan Pak Hoe Pablo at §§15, 32).

99.  As for the third component, material price-sensitivity, I agree with Brown’s opinion that the fact that the Subject Information, if known to the Relevant Investors, would have been highly material to them is demonstrated by how the investors actually reacted once the Takeover was announced.  In this regard, the undisputed evidence shows that:

(1)  On 12 February 2016, TeleEye released its interim results which showed that its business and financial fundamentals were still depressed in that for the 6 months from July to December 2015, it suffered a loss of HK$2.1 million albeit it was lower than the loss reported in the previous year.  The shareholders’ equity was HK$76,516,000 as compared to HK$78,763,000 for the same period in 2015.  These show that the business and financial fundamentals of TeleEye remained weak. 

(2)  During the Relevant Period, there was a lack of positive news in respect of TeleEye or support from broader GEM market trends.  The trading conditions in the overall GEM market were subdued, with the market rising by 5.6% between 15 February and 14 April 2016.

(3)  On 12 April 2016 when trading in TeleEye shares was suspended, the price closed at HK$0.58 per share.

(4)  On 14 April 2016, the Joint Announcement was made. 

(5)  On 15 April 2016, when trading of the shares in TeleEye resumed, the price of TeleEye shares rose by 70.7% to HK$0.99 per share (see §§59-61 above), while the turnover increased to HK$181.3 million, which was 138 times the average turnover for the period in question.  By contrast, on the same day,  the GEM market only rose by 0.2%. 

100.  The above evidence shows that the Subject Information, if generally known to the Relevant Investors during the Relevant Period, would have a material impact on TeleEye’s share price.  There is no evidence to suggest that the substantial increases in the trading volume and price of the shares in TeleEye on the first trading day after the Joint Announcement had been made was attributable to any extraneous events or considerations.  To the contrary, the interim results of TeleEye, the lack of positive news about TeleEye, the trading condition of the GEM market during the Relevant Period and the modest rise in the GEM market on 15 April 2016 all go to show that the increases in trading volume and price of TeleEye shares were attributable to the announcement of the Subject Information on 14 April 2016.   

E3.    Whether Yik knew that the Subject Information was inside information during the Relevant Period

101.  There is incontrovertible evidence to show that Yik knew that the Subject Information was inside information during the Relevant Period:  

(1)  Yik attended a training on insider dealing on 11 September 2015, which covered the definition of inside information and the obligation of the listed companies to disclose such information (see §25 above).

(2)  In mid-February 2016, Yik herself informed by Ryan (Foxconn’s representative) that TeleEye was a potential acquisition target and that 50.1% to 75% of its shares were available for acquisition (see §32 above).    

(3)  It was Yik who requested Denis/Ryan to provide a NDA for her consideration on 26 February 2016, and she was provided with the NDA, which made clear that the information about TeleEye was provided to Foxconn for the purpose of evaluating and reviewing the proposed investment and the same was confidential (see §33 above).   

(4)  Yik was involved in all the subsequent negotiations and email correspondence concerning the intended Takeover throughout the period up to the execution of the SPA on 12 April 2016 (see §§34-51 above).

(5)  In particular, it was clear in the draft Joint Announcement circulated to (inter alios) Yik on 7 April 2016 that the Subject Information was confidential and would only be announced to the public when the Joint Announcement was published.  Indeed, it was marked on every page of the draft Joint Announcement, in bold and capital letter, that the document was “strictly confidential”.

102.  Further, the fact that Yik knew that the Subject Information was inside information during the Relevant Period and that she could not trade in TeleEye shares can also be inferred from the following facts:

(1)  From 1 March 2016 to 12 April 2016, Yik only placed the buy orders for TeleEye shares through the Kingsway A/C and Everbright A/C. See the table at §56 above.

(2)  On 1 April 2016, Yik contacted UOB and confirmed instruction to buy up to 5,000,000 TeleEye shares through UOB A/C.

(3)  The above buy orders were placed by Yik through D2/D3’s A/Cs even though Yik had her own margin securities accounts at Kingsway and Everbright, which could have been used to purchase TeleEye shares.    

(4)  The transcripts of the audio recording of the conversation between Yik and Lam shows that on 31 March 2016, Yik gave instruction to Everbright to buy 2 million TeleEye shares at the price below HK$0.45 per share through D2’s securities account:

“Yik: 你四毛五以下，幫她 -- 幫兩個 -- 誒兩個戶口，一共拿兩百萬。

Lam: 但是她現在沒有 -- 沒有 -- 沒有那個購買力了已經，(背景有人說話聲) 用完了都。

Yik: 她不是孖展的嘛，你幫她先買嘛，買 -- 買 T2 嘛，我可以這邊付嘛。

Lam: 就現在已經兩邊已經買了十 -- 二十五萬的孖展了，可以用 ……

Yik: 兩邊買 ……

Lam: …… -- 用 -- 用 -- 用你的帳號嗎？

Yik: 不，不，不，我的不行，我的。

Lam: 不行呀？

Yik: 嗯。

Lam: 你可以先 -- 你 -- 你等 -- 你下午可以打錢會 - 過 來還是怎樣？

Yik: 我們會打錢，你先買吧，買了到時候打錢過                來吧。”

(underlined added)

(5)  The above conversation shows that it was Yik who provided the fund for the TeleEye shares to be purchased through D2’s securities account at Everbright; and she knew that she could not buy any TeleEye shares through her own securities account. 

E4.    Whether Yik dealt in TeleEye shares during the Relevant Period

103.  There is overwhelming evidence to show that Yik dealt in TeleEye shares during the Relevant Period given that:

(1)  Yik placed all the buy orders for TeleEye shares purchased Kingsway A/C and Everbright A/C.  See the table at §56 above.

(2)  On 1 April 2016, Yik contacted UOB and confirmed instruction to buy up to 5,000,000 TeleEye shares through UOB A/C. 

104.  Yik continued to deal with TeleEye shares after the Relevant Period in that  between 15 April 2016 and 20 May 2016, Yik placed all the sell orders and sold 15,650,000 TeleEye shares in D2/D3’s A/Cs.  See the table at §62 above.

E5.    Whether D2/D3 knew / received the Subject Information from Yik which they knew was inside information

105.  I turn to consider the issue whether D2/D3 (and each of them) had the Subject Information during the Relevant Period which they knew was inside information in relation to TeleEye.

106.  D2/D3 both claim that they had no knowledge of the Subject Information during the Relevant Period.  Under cross-examination:

(1)  D2 says that she gave birth to her baby during the Relevant Period, and did not meet or have any conversation with Yik about her securities accounts in Hong Kong.  She had authorised Yik to operate her Kingsway A/C and Everbright A/C, and was not concerned about what securities were purchased or sold through such accounts.  After their marriage in 2010, D2 left all matters relating to her securities accounts to D3, and she provided the PINs[24] of her securities and bank accounts in Hong Kong to D3, who operated the accounts without any reference to her.  She was aware that D3 had been entrusted by her friends and family members to invest in listed securities in Hong Kong, and D3 used the Family Funds to purchase listed securities in Hong Kong, but she was not concerned with and did not ask what securities had been purchased or sold by D3. 

(2)  D3 says that from 2010, he managed the D2/D3’s A/Cs and made all the investment decisions on the purchase and sale of all securities made through such accounts.  The funds used to purchase the listed securities through D2/D3’s A/Cs (including the TeleEye shares) during the Relevant Period came from the Family Funds.  Yik assisted D3 in remitting the Family Funds from the Mainland to the securities or bank accounts of D2/D3 in Hong Kong through a third party remittance agent.  D3 came to know TeleEye through his own research on the public information about TeleEye. 

107.  The burden is on SFC to prove that D2/D3 had actual knowledge of the Subject Information during the Relevant Period which they knew was inside information.  As to this:

(1)  the SFC invites the Court to draw inferences that D2/D3 did have the requisite knowledge on the basis of the circumstantial evidence as established by evidence, as there is no admission from D2/D3 or direct evidence on their knowledge; and

(2)  on the other hand, D2/D3 have put forward assertions to explain the circumstances in which a large quantity of TeleEye shares were purchased through D2/D3’s A/Cs during the Relevant Period.  D2/D3 bear the evidential burden to prove their assertions, and the Court will assess the credibility of their assertions against the objective facts as established by evidence.  This accords with the principle that the burden of proof lies upon the party who substantially asserts the affirmative of the issue.  If, when all the evidence is adduced by all parties, the party who has this burden has not discharged it, the decision must be against him (Phipson on Evidence, 19^th ed, §6-06).

108.  In my judgment, there is cogent evidence to show that D2/D3 (and each of them) had the Subject Information which they knew was inside information in relation to TeleEye during the Relevant Period for the reasons set out below.

109.  First, the timing of the purchases of TeleEye shares through D2/D3’s A/Cs coincided with the progress of the parties’ negotiations on the intended Takeover in that:

(1)  until 1 March 2016, that is, the first trading day after the Subject Information became specific (on 29 February 2016), D2/D3 never traded in any TeleEye shares;

(2)  on 1 March 2016, Yik instructed Kingsway to purchase  TeleEye shares through Kingsway A/C every day with little regard to the share price:

“Yik: 明天繼續，這幾天你就跟我天天收。

Kingsway: 天天掛呀？

Yik: 天天掛 。

Kingsway: 明天看來看甚麼牌子 -- 誒不是， 明天看--看看回來價錢是怎麼樣吧。

Yik: 對，明天看看。

Kingsway: 好，好，好。我讓誒 -- 好，好。

Yik: 在這個 -- 今天這個價錢之內都可以收 ，往下 -- 以下都可以收。

Kingsway: 嗯。不要，明天開盤的時候給你打電話就好了。

Yik: 好吧，好吧。”

(3)  on 3 March 2016, Yik further instructed Kingsway to purchase TeleEye shares at HK$0.35 per share until 2,000,000 shares were purchased and then called her for further instructions;

(4)  on 31 March 2016, which was shortly after KYC had circulated the revised SPA to Jones Day with details of the purchaser, the shares to be acquired and the Price inserted (see §§44-46 above), both D3 and Yik placed orders to buy as many TeleEye shares as possible:

(a)  on 31 March 2016, D3 placed buy order for 5,000,000 TeleEye shares with UOB, and urged UOB to complete the purchase as soon as possible:

“繼續買，就是儘快 -- 儘快買完，買完了再通知我呀”

“今天能夠買完的話就一定要提前買完”

(b)  on 1 April 2016, D3 asked UOB to call Yik to discuss whether the remaining buy order had been processed, and UOB subsequently confirmed to Yik that D3 had acquired a total of 5,000,000 TeleEye shares;

(c)  similarly, on 31 March 2016, Yik instructed Everbright (Lam) to acquire as many TeleEye shares as possible at the price of HK$0.44 per share.  When this was held up because of insufficient credit in Everbright A/C and the need for internal approval by Kingsway, Yik exerted pressure on Lam to expedite the approval process so that she could continue to purchase more TeleEye shares:

“Yik: 那你現在他那個戶口，兩個戶口買到我說的那個數嗎？

Lam: 現在還在等誒公司批，審批啊，因為已 -已經現在用 -- 用了大部分的，用 -- 用了 它 規定的那個額度了嘛，已經超出那個額 度，所以要 -- 要等那個我們公司的 credit 那邊配 -- 誒批核。

Yik: 那現在買了多少了？

Lam: 現在就只買了一百萬多一點嘛。

Yik: 一百萬多一點，還在等，等啥東西呀？你先買，買了我到時候給你就是嘛，像我給支票給你嗎？（背景有人說話聲）你再（聲音重疊）……（聽不清）電話吧。”

“Lam: 誒 -- 誒我們就在等公司批啊，我 -- 我已經在追了，我一有 -- 就一有消息會立馬給你拿掉呀，你就稍等一下吧。（背景有人說話聲）

Yik: 還 -- 還要等公司追，我下午就給你支票啊。

Lam: 對啊，因為他現在他快 -- 就因為我要 -- 因為我按不到嘛，因為他已經過了額，要等公司那邊 -- 那邊申請一下，就要 -- 要 -- 要 - 要幾分鐘時間可能。因為他 -- 他還沒有 -- 他還在開會那個主管。

Yik: 主管。

Lam: 嗯，嗯，嗯，你就稍等一下。

Yik: 你們總 -- 你們總裁，我都認識啊，都是朋友啊。

Lam: 誒是 -- 是 -- 是 ……

Yik: 大老闆，最大老闆。

Lam: 就張……（聽不清）嗎？

Yik: 對啊，最大老闆，我都知道，［Everbright：嗯。］上次我們那個……（聽不清）都本來是他那邊託管一下。

Lam: 哦，好。我 -- 我衝過去跟他說一下聲，讓他快 -- 快一點，好，好，你等等。”

(d)  in the morning of 11 April 2016, Yik placed order to buy HK$2,000,000 TeleEye shares through Kingsway A/C at the price up to HK$0.47 per share.  When this could not be completed on that day, Yik instructed Kingsway (Louisa) to continue to buy TeleEye shares on 12 April 2016 at the price up to HK$0.51 per share.

110.  The above purchases were made during the Relevant Period when TeleEye was admittedly a loss-making company and there was no news about the company in the public domain.  When D3 is asked to explain his sudden confidence in purchasing so many TeleEye shares during the Relevant Period, he is unable to put forward any credible explanation other than (1) his belief in the prospect of the companies listed in GEM being acquired by way of a takeover; (2) the one page news article dated 24 July 2015;and (3) the 2 lines in a newspapers article dated 5 January 2016 which allegedly sparked his interest in buying TeleEye shares (collectively “3 Matters”).   

111.  I do not accept D3’s assertion that at the time he decided to buy a large quantity of TeleEye shares, he did not have the Subject Information or that his decision to purchase TeleEye shares was not motivated by the Subject Information, having regard to the following facts and matters:

(1)  D3 claims that what drew his attention to TeleEye was the phrase “跌至殼價以下的毫子股” in the 5^th line of the article dated 24 July 2015.  However, the relevant part of the sentence was “… 近日跌至殼價以下的毫子股成為新寵，香港電訊國際（248）為其中之一。”  There was no reference to TeleEye at all;

(2)  the 2 articles relied on by D3 were not new.  If, as D3 asserts, his confidence in the shares listed on GEM derived from the articles, there was no reason why he did not purchase any TeleEye shares back in July 2015 or January 2016.  Instead, throughout the period from July 2015 to January 2016, the only shares bought though D2’s Kingsway A/C and Everbright A/C were shares in LM Handbags and Chinese Energy;  

(3)  when D3 is asked by this Court as to what had changed in March 2016 which led to his sudden decision to buy only TeleEye shares and in such large quantity, D3 claims that he wanted to buy TeleEye shares after its price moved up 25% on 5 January 2016, but did not have sufficient fund to do so as he still held a large volume of LM Handbags shares at the time.  D3 further says that this was his “style” and that he similarly did not hold other stocks when he purchased LM Handbags shares in the past;

(4)  I do not find the aforesaid assertions of D3 credible, given that:

(a)  at the time D3 opened a securities account at Kingston, he provided a statement issued by HSBC dated 14 September 2015 which showed that there was  HK$8,006,039.02 in his savings account;

(b)  the assertion does not sit well with D2/D3’s case that there were HK$12 million in the Family Funds for investment in Hong Kong stocks, which had not been used up by the shares in LM Handbags and Chinese Energy purchased;

(c)  as of 5 January 2016, there was HK$126,640 in the Kingsway A/C and HK$216,671 in Everbright A/C which could have been used to purchase TeleEye shares if D3 wanted to do so; and

(d)  the previous trades in D2’s securities accounts did not reflect this “style”.  The statements of Kingsway A/C and Everbright A/C show that there were purchases of both Chinese Energy shares and LM Handbags shares between mid-September 2015 and early October 2015.

112.  Even if one takes the 3 Matters at their face, at most they only go to explain why D3 decided to buy TeleEye shares on one or 2 occasions.  They do not explain why from 1 March 2016 up to 12 April 2016, Yik (on D2/D3’s case, she placed the buy orders in accordance with D3’s instructions) and D3 suddenly became so determined and placed orders to buy as many TeleEye shares as possible.  This was despite the continuous increase in the prices of TeleEye shares. 

113.  The only reasonable inference I can draw from the timing and pattern of the purchase of TeleEye shares through D2/D3’s A/Cs is that D3 had been told by Yik about the Subject Information, which gave him confidence to buy a large quantity of TeleEye shares with little regard to their prices during the Relevant Period. 

114.  The above conclusion is further reinforced by (1) the evidence on the funds flow, which shows that all the funds used to purchase TeleEye shares through D2/D3’s ACs originated from Yik (see §§115-125 below); and (2) the manner in which D2/D3 opened the D2/D3’s A/Cs and, thereafter, allowed Yik to trade through D2/D3’s A/Cs without any reference to D3 (see §§126-128 below).

115.  The objective evidence shows that all the funds used to purchase TeleEye shares through D2/D3’s A/Cs originated from Yik’s bank accounts.

116.  In respect of Kingsway A/C:

(1)  Yik was the only person who liaised with, and arranged all the funds deposited into Kingsway for settlement of the securities purchased through Kingsway A/C (see §53(3) above);

(2)  Yik deposited (a) HK$4,000,000 into Kingsway A/C on 15 September 2015; (b) HK$2,300,000 transferred from her savings account on 2 October 2015; and (c) HK$1,000,000 transferred from her savings account on 7 October 2015.  These amounts were used to purchase shares in LM Handbags;

(3)  On 7 March 2016, Yik transferred HK$563,000 from her savings account to Kingsway A/C;

(4)  On 11 March 2016, 3,148,000 shares in LM Handbags were sold and the amount realised (HK$4,393,638.25) was applied to settle the amount payable for purchase of TeleEye shares;

(5)  On 22 March 2016, Yik transferred HK$370,000 from her savings account to Kingsway A/C; and

(6)  The total amount deposited by Yik into Kingsway A/C was HK$8,233,000, which was more than the costs of  purchasing the 16,090,000 TeleEye shares (HK$6,849,397).

117.  In respect of Everbright A/C:

(1)  On 18 August 2015, Yik transferred HK$1,000,0000 in 2 tranches from her savings account at HSBC to D2’s account at HSBC;

(2)   Also on 18 August 2015, D2 deposited a cheque for HK$1,000,000 with Everbright, which was credited to her Everbright A/C on 20 August 2015.  The amount was used for settlement of the shares in Chinese Energy bought earlier; and

(3)   Prior to the purchase of 1,630,000 TeleEye shares on 5 April 2016 for HK$728,871, there was a credit of HK$216,671.26 in Everbright A/C.  The shortfall was paid by Yik by transferring HK$435,000 from her bank account at HSBC on 5 April 2016.

118.  As for UOB A/C:

(1)  On 14 September 2015, Yik transferred HK$5,000,000 to D3’s bank account at HSBC.  On the same day, D3 transferred HK$5,100,000 to his securities account at Kingston, which was applied to purchase 4,400,000 LM Handbags shares on 15 September 2015;

(2)  On 23 September 2015,  the 4,400,000 LM Handbags shares were withdrawn and transferred to D3’s UOB A/C;

(3)  On 18 March 2016, the 4,400,000 LM Handbags shares were sold and realised HK$6,137,865.68; and

(4)  The 2 settlement amounts namely (a) HK$1,342,124 for the buy order of 3,080,000 TeleEye shares placed on 31 March 2016, and (b) HK$837,761 for the buy order of 1,920,000 TeleEye shares placed on 1 April 2016 were both settled out of the sale proceeds of the 4,400,000 LM Handbags shares.

119.  Despite the above objective evidence which shows that all the funds used to purchase TeleEye shares during the Relevant Period came from Yik, D2/D3 assert that all the funds transferred from Yik’s bank accounts to D2/D3’s A/Cs in fact came from the Family Funds.  For the reasons set out below, I do not think that D2/D3 have discharged the evidential burden of proving their assertion. 

120.  First, D2/D3 have not adduced a single document, let alone any fund flow analysis, to show that all the funds transferred from Yik’s bank accounts into D2/D3’s A/Cs came from the Family Funds. 

(1)  As can be seen from the table in §64 above, between 18August 2015 and 5 April 2016, Yik transferred HK$9,668,000 to D2’s bank/securities accounts, and HK$2,000,000 and RMB8,000,000 to D3’s bank/securities accounts.  The amounts transferred to D2/D3 exceeded the Family Funds by approximately HK$9 million.  D2/D3 have not proffered any explanation as to why Yik had to remit amounts in excess of the Family Funds. 

(2)  The timing of the transfers shown in the Transfer Notes does not sit well with D2/D3’s assertion.  There is a gap of over 5 months between the last transfer (16 September 2015) and the first batch of TeleEye shares purchased on 1 March 2016.  Again, D2/D3 have not even attempted to explain the time gap, let alone demonstrate that the funds remitted by the friends/relatives were the same funds used to purchase TeleEye shares.   

121.  Second, although D2/D3 belatedly produces copies of the Transfer Notes, on their face, they only show that between 26 December 2014 and 16 September 2015, there were 8 transfers of funds in the aggregate amount of RMB 8,650,000 to Yik’s bank account at ABC:

Date	Transferor	Amount
26/12/2014	易永剛 (Yi Yong Gang)	400,000
26/12/2014	易永剛	600,000
29/12/2014	易永剛	500,000
25/12/2014	謝金茶 (Xie Jin Cha)	1,850,000
8/4/2015	易永春 (Yi Yong Chun)	300,000
27/5/2015	易永春	2,530,000
9/6/2015	易永春	370,000
16/9/2015	易永春	2,100,000

122.  I have great reservation as to the authenticity of the Transfer Notes, given that:

(1)  D2/D3 only faxed copies of the Transfer Notes to the Court alongside with their Opening submissions.  The SFC does not have a proper opportunity to request for the originals of the Transfer Notes or to check their authenticity. 

(2)  D2/D3 have not adduced any corroborating evidence, such as bank statements or other contemporaneous documents, to show that the above transfers in fact took place.

123.  Third, even assuming the Transfer Notes are genuine, they do not support D2/D3’s case that all the funds used to purchase the TeleEye shares originated from the Family Funds:

(1)  There is simply no evidence to show that the amounts transferred to Yik’s bank account at ABC were subsequently remitted to Hong Kong and transferred to D3’s bank / securities accounts.

(2)  As can be seen from the table in §52 above, prior to the 8 transfers, D3 had already opened a securities account at BOCI and by 2 January 2015, he also opened a bank account at HSBC. 

(3)  On D2/D3’s own case, D3 had been entrusted by his friends / relatives with the Family Funds, it would be incumbent upon D3 to ensure that the Family Funds were kept in his accounts and under his control.  There was no reason why the funds should be kept in Yik’s bank accounts in Hong Kong.

124.  Fourth, the Transfer Notes are inconsistent with D2/D3’s pleaded defence in that:

(1)  When the SFC sought further and better particulars on the contributors of the Family Funds (as pleaded in D2/D3’s Defence), D2/D3 claimed that the contributors were[25]:

Contributor	Relationship with D2/D3	Approximate Amount
D2		RMB 1 million
謝金茶Xie Jin Cha	Aunt of D2	RMB 1.85 million
魏俊	Aunt of D2	RMB 2 million
王元如 Wang Yuan Ru	Friend of D3	RMB 0.4 million
易永春 Yi Yong Chun	Relative of D2	RMB 5.4 million
Total		RMB 10.65 million

(2)  In the same FBP, D2/D3 said that they “do not have record of the exact dates of payment by the various investors of the investment contributions, but the contributions were paid during the period from 2014 to early 2015”[26].

(3)  It can immediately be seen that both the identity of the investors and the amounts allegedly contributed by them are very different from what is shown in the Transfer Notes (see §121 above).  When the inconsistencies are put to D2/D3 during cross-examination, they are not able to put forward any credible explanation to explain the inconsistencies other than asserting that (a) D2’s mother had provided RMB900,000 which, in turn, was contributed by D2 into the Family Funds, (b) 易永剛 (whose name never featured in D2/D3’s FBP), is the husband of 魏俊 and, in their mind, 魏俊 is the same as 易永剛 as they are husband and wife. 

125.  Fifth, the objective evidence shows that the alleged contributors to the Family Funds did not have to rely on D3 to invest in Hong Kong listed securities, given that:

(1)  Wang Yuan Ru and Xie Jin Cha had already opened securities accounts in Hong Kong in as early as September 2015, through the introduction of Yik, details as follows:  

Account holder	Securities company	Date opened
王元如 Wang Yuan Ru	Kingsway (with Yik as authorised representative)	22/9/2015
謝金茶 Xie Jin Cha	Kingsway	30/9/2015
	Get Nice (with Yik as authorised representative)	30/9/2015

(2)  Like D3, the documents relating to the securities accounts of Wang Yuan Ru and Xie Jin Cha, including pre-signed authorised persons forms and settlement instruction requests, were found in Chinese Energy’s office. 

(3)  Yik transferred HK$2.5 million to Xie Jin Cha’s securities account at Kingsway on 2, 7 and 12 October 2015.  Yik also transferred HK$6 million to Wang Yuan Ru’s bank account at HSBC on 25 May 2016.

(4)  Yi Yong Chun is the younger brother of Yik.  He could have relied on Yik to invest in Hong Kong listed securities on his behalf if he had no securities account.  In any event, according to the account opening form at China Rich Securities Ltd signed by Yi Yong Chun, as of 5 January 2017, he had 7 years’ experience in trading in listed securities.

126.  I turn to the manner in which the D2/D3’s A/Cs were opened and operated.  The objective evidence shows that D2/D3 allowed Yik to have complete control over D2/D3’s A/Cs until at least she left Hong Kong in August 2016, and cooperated with Yik in moving funds into and out of D2/D3’s A/Cs. 

127.  First, as stated in section C3 above, it was Yik who introduced and arranged the D2/D3’s A/Cs to be opened.  Yik was authorised by D2 to operate Kingsway A/C and Everbright A/C without any restriction or limit.  Similarly, D3 wanted to authorise Yik to operate his securities account at Kingsway and UOB at the outset.  Even the form for authorising Yik to operate the UOB A/C was arranged by Yik. 

128.  Second, D2 in her WS accepts that she and D3 would discuss with Yik in relation to investment in Hong Kong listed shares in that (1) D2 confirms that she sought advice from Yik on how to make investments[27]; and (2) D2 says that when she introduced Yik to D3 in 2010, Yik and D3 would exchange investment ideas and knowledge[28]. However,  at trial, both D2/D3 try to distance themselves from Yik and claim that they rarely had any conversations with Yik and were not close to her.  I do not accept their belated assertions, as the evidence shows that D2/D3 were very close to Yik, and they knew that what securities had been purchased by Yik through D2/D3’s A/Cs as well as the movements of funds into and out of such accounts:  

(1)  D2 trusted Yik a lot.  She let Yik to use Kingsway A/C and Everbright A/C to trade in the way she liked. In addition, since 21 November 2006, D2 has replaced Yik as the sole member of Jolly Cole Group Ltd, a company controlled by Yik which maintained a securities account at BOCI.

(2)  D3 worked very closely with Yik in that as stated in the account opening form at Kingston (signed by D3), he was employed as a manager of 江西稀有稀土金屬錫業集團 (香港)有限公司, a company wholly owned by Yik.

(3)  As stated above, D2/D3 relied on Yik to arrange the opening of the D2/D3’s A/Cs and subsequently authorised Yik to be their representative in operating the accounts without any restriction or limit.  It is inconceivable that Yik would not have any discussion with D2/D3 before she began to buy TeleEye shares on 1 March 2016. 

(4)  D3’s personal documents including copies of the forms he signed in relation to UOB A/C were found in Yik’s office at Chinese Energy.

(5)  The monthly statements of D2/D3’s A/Cs were sent to D2/D3’s residential address in Shenzhen.  D2 admits that she read some of the statements, while D3 says that he relied on the monthly statements to keep track of what securities had been purchased through D2/D3’s A/Cs.  As such, D2/D3 could readily find out from those statements that a large quantity of TeleEye shares had been purchased through those accounts.  It was only natural for D2/D3 to read the statements given that D2/D3’s A/Cs were margin accounts and they were personally liable to repay any amount which might be owed to Kingsway, Everbright and UOB. 

(6)  According to D2, since she married D3 in 2010, they combined all their monies in the same bank accounts.  The transfers of funds from Yik to the bank accounts of D2/D3, and from their bank accounts to D2/D3’s A/Cs (as described in §§64-65 above) could not have been effected without the knowledge and consent of D2/D3.  The fact that D2/D3 signed the withdrawal forms or gave authorisations for the funds to be transferred out of their bank / securities accounts show that they must have knowledge of the state of D2/D3’s A/Cs including what securities had been purchased through such accounts.

129.  The above facts and matters are only consistent with, and explicable by, the fact that D2/D3 had received the Subject Information from Yik at the time the buy orders for TeleEye shares were placed through D2/D3’s A/Cs. 

130.  At trial, D2/D3 does not really dispute that the Subject Information was inside information in relation to TeleEye during the Relevant Period.  Their case is that they only came to know about the Subject Information when the Joint Announcement was issued, which I do not accept for the reasons stated in §§106 - 129 above.  As there is no evidence or suggestion that the Subject Information was in the public domain during the Relevant Period, it is reasonable to infer that D2/D3 knew that the Subject Information was inside information in relation to TeleEye.   

131.  Lastly, there is cogent evidence to show that D2/D3 knew that Yik was connected with TeleEye, having regard to the following matters:

(1)  D2[29] and D3[30] admit in their respective WS that they were aware that Yik was involved in operations of listed companies in Hong Kong and was an executive director of Chinese Energy. 

(2)  For the reasons stated in section E1 above, Yik was a person connected with TeleEye. 

(3)  The close relationship between Yik and D2/D3, and the extensive and coordinated dealings in relation to the purchase and sale of TeleEye shares through D2/D3’s A/Cs (discussed in §128 above) is sufficient for the Court to infer that D2/D3 knew that Yik was a person connected with TeleEye.

E6.     Whether D2/D3 knew / had reasonable cause to believe that Yik held the Subject Information as a result of being connected with TeleEye

132.  For the same reasons stated in section E5 above, I hold that D2/D3 knew or had reasonable cause to believe that Yik held the Subject Information as a result of being connected with TeleEye.

E7.    Whether D2/D3 dealt in TeleEye shares during the Relevant Period

133.  At trial, D2/D3 does not dispute that they dealt in TeleEye shares during the Relevant Period.  Indeed, on D2/D3’s own case, Yik was their representative in buying all the TeleEye shares purchased through D2/D3’s A/Cs during the Relevant Period in that:

(1)  it is not in dispute that except the buy order for 3,080,000 TeleEye shares which was placed by D3 with UOB on 31 March 2016, all the buy orders for TeleEye shares purchased through D2/D3’s A/Cs were placed by Yik;

(2)  as stated in the authorisation forms signed by D2 and provided to Kingsway and Everbright, Yik was D2’s authorised representative in respect of all dealings pertaining to the Kingsway A/C and Everbright A/C;

(3)  according to D3, Yik placed all the buy orders in accordance with his instructions and as his representative; and 

(4)  accordingly, it is D2/D3’s case that Yik was their agent when she dealt in TeleEye shares. 

134.  In any event, the fact that the TeleEye shares were purchased through D2/D3’s A/Cs constituted dealing in TeleEye shares during the Relevant Period. 

135.  As all the elements required for insider dealing have been established as against Yik and D2/D3, I hold that:

(1)  Yik committed the offence of insider dealing in contravention of ss.270(1)(a)(i) and 291(1)(a) of the SFO; and

(2)  D2 and D3 and each of them, committed the offence of insider dealing in contravention of s.270(1)(e)(i) and s.291(5)(a) of the SFO.

E8.    Whether D2/D3 were involved in Yik’s insider dealing

136.  In light of my holding that each of D2/D3 committed the offence of insider dealing, it is strictly speaking not necessary to consider whether D2/D3 were involved in Yik’s contravention of the SFO.  However, if contrary to my holding in section E5, D2/D3 did not have the knowledge of the Subject Information and Yik’s position as a connected person during the Relevant Period, it would be necessary to consider whether D2/D3’s involvement in Yik’s insider dealing constitute a relevant wrongdoing under s.213(1)(a)(ii)-(v) of the SFO.

137.  Ms Lam submits that D2/D3 have directly or indirectly been knowingly involved in, or were parties to, Yik’s insider dealing, which is a relevant wrongdoing under s.213(1)(a)(iv), and the Court may grant any of the relief specified in s.213(2) of the SFO.

138.  Ms Lam submits that for the purpose of s.213(1)(a)(iv) of the SFO:

(1)  the word “involved” under s.213(1)(a)(iv) should be construed purposively to achieve its purpose of enhancing the deterrent and punitive effect of the available sanctions to combat effectively acts of market misconduct.  It should apply to both persons who facilitate insider dealing in some way, for example by being a nominee holder or shares for an insider dealer or having some other part to play, such as holding the proceeds of the insider dealing after it has taken place, as well as persons who trade in the shares about which inside information is known, but do so without being aware that inside information is being misused (SFC v Young Bik Fung and others,§§90-95);

(2)  although s.213(1)(a)(iv) itself uses the word “knowingly”, it is not necessary for the SFC to establish that the party involved in the insider dealing did so with knowledge of the wrongdoing, as s.213(2)(b) makes clear that the Court may make the orders specified “where a person has been, or it appears that a person has been, is or may become, involved in any of the matters referred to in subsection (1)(a)(i) to (v), whether knowingly or otherwise”[31].  Consistent with this, the Court in SFC v Young Bik Fung held that “it must be right to compel [the party involved] to return the profits obtained from tainted transactions … even if she were unaware of the wrongdoings”; and  

(3)  in relation to s.300 of the SFO[32], it has been observed that the word “involving” suggests a wide range of connection, and is one of the broadest words of association known to the English language (Lee Kwok Wa v SFC (2018) 21 HKCFAR 537 at §59).

139.  Ms Lam submits that D2/D3 were clearly involved in, and were parties to, insider dealing by Yik, given that Yik traded in TeleEye shares through D2/D3’s A/Cs, and the profits were paid to D2/D3’s bank accounts.  Insofar as necessary, the SFC relies on s.249[33] of the SFO, which provides that for the purpose of ss.245(2) and Division 4[34], “a person shall be regarded as dealing in listed securities or their derivatives if, whether as principal or agent, he sells, purchases, exchanges subscribes for, or agrees to sell, purchase, exchange or subscribe for, any listed securities …”.

140.  The objective facts show that D2/D3 allowed Yik to trade in  TeleEye shares through their securities accounts and used their bank accounts to receive the proceeds of sale of the TeleEye shares purchased during the Relevant Period.  In my view, such conduct constituted direct involvement in Yik’s insider dealing, and rendered D2/D3 to become parties to such insider dealing under s.213(1)(a)(iv) of the SFO. 

E9.    Whether it is desirable for the Court to grant the relief sought by the SFC

141.  The reliefs sought in the ASOC are:

(1)  A declaration that Yik contravened s.270(1)(a) or s.291(1), s.270(1)(c) or s.291(3), or s.270(1)(e) or s.291(5) of the SFO;

(2)  A declaration that D2/D3 contravened s.270(1)(e) or s.291(5) of the SFO;

(3)  A declaration that Yik, D2 and D3 are persons within s.213(1)(a) and/or s.213(1)(b) of the SFO; and

(4)  An order under s.213(2)(b) directing that Ds be jointly liable to disgorge or account for the Profits made and pay the Profits and/or proceeds to such person or persons as the Court may direct;

(5)  An order under s.213(2)(c) restraining or prohibiting Ds from disposing of or otherwise dealing in the Profits made or their traceable proceeds;

(6)  An order under s.213(2)(d) appointing a person to receive the Profits or their traceable proceeds and administer them as the Court may direct; and

(7)  An order under s.213(2)(8) requiring Ds to pay damages to any other person, as the Court considers appropriate.

142.  Pursuant to their undertaking given to the Court on 27 January 2017, D2/D3 paid HK$9,292,290.36 from their bank accounts at HSBC into court on 9 February 2017, and HK$3,657,584.64 from  Kingsway A/C into court on 20 February 2017.  As the full amount of the Profits remain in court, the SFC does not seek an injunction against D2/D3.   

143.  In light of my holdings in §135 above, it is appropriate to grant the following declarations:

(1)  A declaration that Yik committed the offence of insider dealing in contravention of ss.270(1)(a)(i) and 291(1)(a) of the SFO;

(2)  A declaration that D2 and D3 and each of them committed  the offence of insider dealing in contravention of s.270(1)(e)(i) and s.291(5)(a) of the SFO; and

(3)  A declaration that Yik, D2 and D3 are persons within s.213(1)(a)(i)(A) and s.213(1)(a)(iv) of the SFO.

144.  I am satisfied that it is desirable for the Court to grant the orders sought by the SFC under s.213(2) and that the orders will not unfairly prejudice any person for the following reasons:

(1)  The funds used to purchase TeleEye shares during the Relevant Period came from Yik (as I so find).  There is no third party interest which needs to be considered;

(2)  The amount of which the SFC seeks an account or payment from Ds represents the actual profits made by Ds from engaging in insider dealing.  It has not taken into account what, if any, profits have been made by Ds from the remaining 7,160,000 TeleEye shares purchased through D2/D3’s A/Cs during the Relevant Period; and

(3)  It is desirable that Ds should be required to disgorge the profits made from insider dealing, to ensure that Ds cannot benefit from their own wrongdoing. 

145.  At trial, the SFC has not made clear whether if the Court made the declarations sought in the ASOC, the order sought in prayers (4), (6) and (7) of the ASOC should be one of account of profits or damages.  Nor has the SFC made any submissions on the identity of the person(s) to whom the Profits should be paid. 

146.  It seems to me that in view of the nature of the remedies under s.213, which is to provide remedies “for the benefit of the parties involved in the impugned transactions”, and the role of the SFC as “protector of the collective interests of the persons dealing in the market who have been injured by market misconduct” (see§70 above), it may not be appropriate for the Court to order Ds to pay the Profits to the SFC, as it is neither a party involved in, nor a person injured by, the impugned transactions.

147.  Ms Lam submits that as far as she is aware, the issue has not been considered or determined by the Court in the context of a claim brought by the SFC based on insider dealing committed by the defendants under s.213 of the SFO.  Ms Lam invites the Court to deal with the form of orders to be made under s.213(2) after considering the submissions from the parties on the issue.  As this is a novel issue which is raised by the Court of its own motion, it seems to me that it is appropriate to adjourn that part of the relief sought in the ASOC so as to give a proper opportunity to the parties to address the Court on the issue. 

148.  Accordingly, in respect of the relief sought in prayers (4), (6) and (7) of the ASOC (“Relief Issue”), I make the following directions:

(1)  the Relief Issue be adjourned for further evidence (if any) and submissions, on a date to be fixed within 4 months of the date of this Judgment, with one day reserved;

(2)  the SFC do file and serve evidence, if any, on Relief Issue within 35 days of this Judgment;

(3)  D2/D3 do file and serve evidence, if any, on Relief Issue within 14 days thereafter;

(4)  The SFC do file and serve evidence in reply, if any, within 14 days thereafter;

(5)  No other evidence to be filed without leave of the Court;

(6)  The SFC do lodge and serve its submissions on the Relief Issue 7 clear days before the hearing on the Relief Issue;

(7)  D2/D3 do lodge and serve their submissions on the Relief Issue, if any, 4 clear days before the hearing on the Relief Issue; and

(8)  The SFC do lodge and serve e-bundles for the hearing in accordance with the previous directions on trial bundles. 

149.  As for costs, I make a costs order nisi that Ds shall pay the costs of and occasioned by this action including all costs reserved to the SFC, to be taxed if not agreed with certificate for 2 counsel.