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Brian Wong

A prominent hedge fund manager took advantage of a bank’s “wholesale collective failure” to prevent illicit trading, making HK$1.7 million in a single day by using confidential information to sell shares in a Hong Kong fashion house nine years ago, prosecutors alleged on Tuesday.
British-born investor Simon Sadler is on trial at the District Court alongside the now-defunct Segantii Capital Management and former employee Daniel Anthony La Rocca Jnr over alleged insider dealing in the shares of Hong Kong-listed Esprit on June 14, 2017.
Once dubbed Asia’s “block trade king”, Sadler founded Segantii in 2007, building the Hong Kong investment firm into one of the region’s largest hedge funds, with nearly US$5 billion in assets in its heyday.
Sadler also owns his hometown football club, Blackpool FC.
Opening their case on Monday, prosecutors argued that Sadler and La Rocca sold more than 1.7 million Esprit shares that day and took short positions after learning that a major shareholder planned to offload its entire stake.
Lone Pine, an American investment company that owned more than 10 per cent of Esprit, sold more than 195 million shares at HK$4.68 each to nine institutions, with Segantii acquiring 8 million on June 15, 2017.
Sarah Clarke KC, representing the prosecution, said the defendants earned a profit by selling Esprit shares ahead of an inevitable price drop due to the sudden surge in market availability.
An expert witness engaged by prosecutors estimated the defendants made between HK$1.6 million and HK$1.7 million on June 14 that year.
According to prosecutors, block trades involving private transactions of shares required strict adherence to “wall-crossing” procedures to ensure potential buyers were restricted from trading until the inside information they received was made public.
But Merrill Lynch Far East, the Hong Kong-based division of Bank of America responsible for arranging the trade, did not observe such protocols, Clarke told the court on Tuesday.
Tony Psarianos, a former Merrill Lynch trader who approached Segantii through La Rocca, did not warn the firm against trading Esprit’s shares when he asked whether it was interested in the deal.

Clarke argued that given Sadler’s and La Rocca’s investment experience, they must have been aware of the sensitive nature of the information they received from Psarianos even without an explicit warning.
“There were a large number of obvious factors that clearly showed that the information they were given was inside information, and the defendants clearly could not take advantage of the negligence of [Merrill Lynch Far East] and act on what they knew to be [inside information],” she said in her written opening statement.
“The defendants saw an opportunity to exploit MLFE’s compliance failures and ... took unfair and illegal advantage of the market by selling Esprit shares on the basis of the inside information, thereby committing the offence of insider dealing.”
Prosecutors will start calling witnesses on Wednesday.
Psarianos, whose earlier request to testify remotely from Australia so that he could continue to look after his cattle farm was rejected, is expected to take the stand next Monday.
The trial before Judge Josiah Lam Wai-kuen is scheduled to last 25 days.


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Law and Crime

Prosecutors allege Simon Sadler and Daniel La Rocca used confidential information about planned block trade to sell more than 1.7 million Esprit shares


Prosecutors allege Simon Sadler and Daniel La Rocca used confidential information about planned block trade to sell more than 1.7 million Esprit shares.


Hedge funds

Financial crime

Financial regulation

Bank of America

Hong Kong ‘block trade king’ exploited bank lapse to make HK$1.7 million, court told

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Prosecutors allege Simon Sadler and Daniel La Rocca used confidential information about planned block trade to sell more than 1.7 million Esprit shares

Prosecutors allege Simon Sadler and Daniel La Rocca used confidential information about planned block trade to sell more than 1.7 million Esprit shares