Operational Risk of Material Non-Public Information : New Insider Trader Allegations Against Tiger Asia
Since the news of Galleon first broke there has been an increased focus in the hedge fund due diligence community, or at least their should be, placed on both the uses of material non-public information and the controls surrounding a fund’s ability to conduct insider trading.
It seems that the Hong Kong Securities and Futures Commission (HK SFC) has been paying attention to this market chatter – and is exemplifying it in the form of recent allegations against hedge fund firm Tiger Asia. This fund is, as Bloomberg reports, one of the so-called Tiger cubs, or groups of hedge fund managers that received backing from Julian Robertson. Here is an interesting video about Robertson:
The HK SFC has specifically alleged that Tiger Asia, which is led by Bill Hwang, engaged in insider trading in the shares of Bank of China Ltd. The SFC claims that Tiger Asia received advance notices and was invited to participate in the placement of Bank of China shares by both UBS AG (on Dec. 31, 200) and Royal Bank of Scotland Group Plc (Jan. 13
, 2009). The allegations continue, that Tiger Asia than sold short 104 million Bank of China share before the UBS placement deal – grossing some HK$8.6 million profit in the process. Similarly, the HK SFC alleges, Tiger Asia short sold 256 million shares before the RBS placement. This was not such a good strategy because the fund reportedly had a loss of about HK$10 million.
While, these charges related to the Bank of China, the HK SFC is also pursuing insider trading charges relating to Tiger Asia role to participate in the planned Bank of America placement of Construction Bank shares in January 2009. Through an alleged similar short sale operation the HK SFC alleges that Tiger Asia made profits of HK$29.9 million.
The HK SFC is aggressively pursuing these charge and has asked a Hong Kong court to freeze up to HK$29.9 million to Tiger Assets. Additionally, the SFC is seeking to unwind the allegedly illegal trades, ban Tiger Asia and three offices from trading similar listed securities and derivatives in Hong Kong and to restore counterparties to their previous holdings.
Insider trading and the use of material non-public information will continue to be a key elements of the compliance and trading operations reviews analyzed during the operational due diligence process. As a hedge fund investor how have you integrated these types of reviews into your due diligence process? If not, do you plan to?….
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