Segantii Hong Kong Insider Dealing Case Adjourned to Oct. 15
(Bloomberg) -- The insider dealing case against hedge fund firm Segantii Capital Management, its founder Simon Sadler and former trader Daniel La Rocca has been adjourned to Oct. 15.
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No pleas were entered at a Hong Kong District Court hearing on Tuesday. The defendants have asked to review unused materials related to the case, the court heard. The case, one of the city’s highest profile legal actions against a major hedge fund firm, was moved from a lower-level magistrates’ court in June.
Hong Kong’s Securities and Futures Commission accused the trio of trading $1.14 million worth of shares of fashion retailer Esprit Holdings Ltd. before a June 2017 block trade, according to writs of summons dated March 25. They allegedly received inside information from Tony Psarianos, whose regulatory records showed him to be employed by Bank of America Corp.’s Merrill Lynch unit at that time.
Unlike the previous hearing, when Sadler and his entourage showed up a few minutes late, the group arrived early at the District Court on Tuesday morning.
Sadler arrived with Segantii Chief Compliance Officer Niral Maru, lawyer Derek Chan and others in two chauffeured vehicles. La Rocca and his attorney, Alan Linning, came in a separate taxi. The hearing was scheduled for 10:15 a.m. Hong Kong time along with about a dozen other cases.
Seats had been reserved for the Segantii team in the front row of the packed courtroom by local residents, including a man wearing a baseball cap who had tattoos on his legs.
La Rocca shook hands with Sadler inside the courtroom, and the duo sat next to each other along with their lawyers. They looked relaxed and chatted while waiting for the hearing to begin. The start was delayed by 45 minutes and the air-conditioning in the courtroom wasn’t working well, leading Sadler to fan himself with a white handkerchief.
From humble beginnings with around $26 million in 2007, Sadler built Segantii into a firm that oversaw as much as $6.2 billion in late 2021. He earned the reputation as Asia’s block trade king for the firm’s pivotal role in helping banks carry out such off-exchange sales of large chunks of shares.
Financial regulators from the US to Asia have been turning up the heat on banks and investors involved in block trades. They have been focusing on the sharing of material non-public information that could give some clients a trading edge while helping reduce banks’ use of their own balance sheets in such trades.
Earlier this year, Morgan Stanley agreed to pay $249 million to settle US probes over how the bank handled confidential information ahead of block trades. In Hong Kong, the SFC last year launched a public consultation on proposed “market sounding” guidelines that would govern how banks and brokers can share information when they are gauging investor demand for large stock sales.
Segantii allegedly sold 1.57 million Esprit shares it owned at HK$5.25 each and short-sold another 132,000 shares at HK$5.23 apiece on or around June 14, 2017. Lone Pine Capital LLC, a US-based hedge fund firm, sold a 10% stake in the company in a block trade the next day, according to a regulatory filing. Esprit’s shares slumped 29% over six consecutive days of losses around the block trade.
The litigation is expected to be drawn out over months, if not years. It has already led Segantii to shutter its $4.77 billion hedge fund and return capital to clients. The firm had one of the most consistent track records in the Asian industry, with its more than 16-year-old hedge fund recording only two small annual losses.
The Segantii case will be the highest-profile of its kind since the conviction of Du Jun, a former Morgan Stanley managing director, who was sentenced to seven years in jail by a Hong Kong District Court in 2009 for insider dealing. That sentence was later reduced to six years. The District Court can handle out a maximum seven-year prison sentence for insider dealing convictions.
(Updates with details from Tuesday’s hearing.)
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