April 30 Hong Kong's Court of Final Appeal has abruptly dismissed a challenge to the powers of the city's market regulator brought by hedge fund Tiger Asia, validating the watchdog's use of civil courts in a stepped-up campaign against financial misdeeds.
The U.S.-based fund was challenging whether the Securities and Futures Commission (SFC) was legally empowered to sue it in the civil courts if it had not been found guilty of any offence in the city's criminal courts or at a market tribunal.
However, the court dismissed the fund's case on Tuesday surprisingly quickly after hearing representations from the fund's lawyers. The judges will provide their reasons at a later date.
The SFC had alleged the fund engaged in insider dealing in the stocks of China Construction Bank Corp and Bank of China Ltd in 2008 and 2009 but was unable to take criminal action against it or its staff since they were all based outside of Hong Kong.
The regulator asked the civil courts to freeze some of the fund's assets and ban it from trading in the city's financial markets.
The case was seen as a major test of the scope of the SFC's authority under section 213 of Hong Kong securities law, which gives the regulator wide powers such as issuing restraining orders and voiding contracts, but had been put to limited use until recent years.
The regulator argues it is vital that it be able to use the courts to obtain these types of remedies, given that so many investors and companies in Hong Kong's markets are based overseas.
"The decision by the Court of Final Appeal vindicates our position and our strategy in seeking remedial orders under section 213," said the SFC's enforcement head, Mark Steward.
Tiger Asia admitted last December to charges brought by the U.S. Securities and Exchange Commission (SEC) of wire fraud in connection with the trades in the Chinese bank shares that the SFC alleged were illegal.
The SEC also charged Tiger Asia's head trader, Raymond Park, with insider trading. Park and the fund's founder Sung Kook Bill Hwang agreed to settle the SEC's charges without admitting or denying them.
When the SFC first took its case against Tiger Asia to Hong Kong's Court of First Instance in April 2010, it was rejected. The judge ruled that the city's criminal courts or Market Misconduct Tribunal first had to determine whether the fund had committed any wrongdoing.
That was overturned last year in the Court of Appeal, and Tuesday's ruling means that Tiger Asia can take the case no further.
The fund, which managed as much as $5 billion at its peak, was spun off from fund guru Julian Robertson's Tiger Management, one of the world's largest hedge funds in the late 1990s. Robertson returned investor money in 2000 and focused on investing his own earnings in funds managed by his protégées, known on Wall Street as "Tiger Cubs".
Tiger Asia announced that it would return money to investors by the end of last August because of the prolonged investigation in Hong Kong.