(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 given, as the defendants asked for unused material and evidence related to the case at a Hong Kong District Court on Tuesday. 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 Hong Kong-listed 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.
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 draw out over months, if not years. It has already prompted Segantii to shutter its $4.77 billion hedge fund and return capital to clients, citing its potential impact on its ability to implement the investment strategy. The firm has 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. It employed 151 people in Hong Kong, New York, London and Dubai, according to its website.
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, said Jimmy Chan, a partner at law firm Jingtian & Gongcheng LLP and a former SFC enforcement director. That sentence was later reduced to six years.
A district court can handle out a maximum seven-year prison sentence for inside dealing convictions, compared with a three-year sentencing ceiling at the magistrates’ courts.
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