HONG KONG: Guilty verdict issued in SFCs first direct action against Short Sellers

Monday September 5 2016

Hong Kong`s Market Misconduct Tribunal (MMT) has found short seller Mr. Andrew Left culpable of market misconduct, in a case representing the Securities and Futures Commission`s (SFC) first direct action against short sellers.

Mr. Left is the head of Citron Research, which conducts investigations into the accounts of listed companies. In June 2012, Citron Research published a discouraging article with regard to the Chinese property developer, Real Estate Group Limited (Evergrande). The SFC determined that Mr. Left began selling shares short in Evergrande two weeks prior to the publication of the articles and began buying them back on the day of publication, resulting in net profit trades of HK$1.6m.

The MMT ruled that Mr. Left had made false and misleading allegations with regard to the Evergrande Group being insolvent and engaging in fraudulent activity, and criticised him for not familiarising himself with the relevant accounting standards nor seeking comment from Evergrande prior to publication. Additionally, they found that Mr. Left was reckless (alternatively negligent) as to whether the information in the Citron Report was false or misleading as to the material facts.

MMT will impose a sanction at a later date, which may include a ban from trading in Hong Kong shares for up to five years and repayment of the profit made from trades in Evergrande.

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