Hong Kong Court of Appeal agrees with MMT on the defence of “no profit motive” to insider dealing case

The Hong Kong Court of Appeal has dismissed an appeal by the Securities and Futures Commission (“SFC”) against the findings of the Market Misconduct Tribunal (“MMT”) that two former executives of Asia Telemedia Limited (“ATML”) had not engaged in insider dealing in ATML shares. This is a rare recent case in which the defence of “no profit motive” to insider dealing under section 271(3) of the Securities and Futures Ordinance (“SFO”) has been examined by the Court of Appeal.

Section 271(3) provides a defence to insider dealing where a person, having dealt in the shares of a listed company when knowingly in possession of price sensitive information, can establish that when he dealt, “the purpose for which he dealt … was not, or where there was more than one purpose, the purposes did not include, the purpose of securing or increasing a profit or avoiding or reducing a loss, whether for himself or another, by using relevant information.”

The Court of Appeal refused to extend the meaning of “use” in section 271(3) of the SFO to cover withholding or non-disclosure of relevant information. A defence under s271(3) would therefore be established if the accused can establish, on a balance of probabilities, that although he was knowingly in possession of price sensitive information, that was not a factor inducing him to deal. It is not sufficient to establish that the price sensitive information was only a subsidiary motivating factor, it must be established it was not in any way a causative factor.

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