HONG KONG: Former Morgan Stanley managing director Du Jun was convicted of insider trading in Hong Kong's biggest criminal prosecution for the offense.

District Court Judge Andrew Chan found Du, 40, guilty of nine counts of insider trading and one count of advising his wife to deal in shares of CITIC Resources Holdings Ltd in 2007.

He bought 26.7 million shares of the company for about HK$87 million ($11 million), the biggest amount ever since the offense was made a crime in 2003.

Du's conviction is Hong Kong's 10th since the Securities and Futures commission began laying insider-trading criminal charges last year. Former BNP Paribas Peregrine Capital Ltd banker Ma Hon-yeung was jailed for 26 months in April and Ex-CLSA Asia-Pacific Markets banker Allen Lam and former HSZ (Hong Kong) Ltd fund manager Ryan Fong were given prison terms in July.

A high conviction rate "will form part of the deterrent," said David Webb, a former independent director of the Hong Kong stock exchange and publisher of Webb-Site.com.

Prosecutor Charlotte Draycott told the court that Du became aware of CITIC Resources' plan to buy a mainland oilfield while assisting the company in selling bonds. He sold half of the shares he bought in July 2007 for a profit of about HK$33.4 million after a May 8 announcement of a deal, she said.

Du's lawyer Alexander King argued that the banker wouldn't have sought and gained approval to trade the shares from Morgan Stanley's compliance department had he known the information he had was relevant. Morgan Stanley's surveillance of employees' trading was "hopelessly inadequate" and "correct protocol was habitually not followed," Draycott said.

One compliance officer mistook Du's request to mean that he wanted to trade in CITIC Pacific Ltd shares, she said.

Judge Chan said he was satisfied Du "must have realized he's over the wall and he was clearly over the wall," referring to the compliance status at banks when staff have material non-public information on a deal.

Chan didn't say yesterday when he will sentence Du. In a session scheduled for today, Du's attorney is expected to enter a mitigation plea, Chan said. Du's bail has been revoked and he was remanded after the judge's ruling.Insider dealing, now carrying a maximum prison sentence of 10 years and fines of up to HK$10 million, was punishable only with fines until 2003.

Bloomberg News

(HK Edition 09/11/2009 page6)