In August 2016, Hong Kong’s Market Misconduct Tribunal (the “MMT”) found a U.S.-based commentator (Andrew Edward Left) culpable of market misconduct in connection with his research report (“Left’s report”) on the Hong Kong listed company Evergrande Real Estate Group Limited1 (“Evergrande”) published in June 2012 on a U.S.-based Internet website called Citron Research.2 This was the first direct action of the Securities and Futures Commission of Hong Kong (the “SFC”) against short-sellers and one of the recent cases of the SFC directed at a person located outside of Hong Kong. In October 2016, the MMT issued a number of orders against Left, including a ban from trading securities in Hong Kong for the maximum period of five years.3 Left appealed against the MMT’s determination and orders. In January 2017, the Court of Appeal in Hong Kong dismissed Left’s appeal against the MMT’s determination on questions of fact. Left’s appeal against the MMT’s findings on points of law is expected to be dealt with by the Court of Appeal separately.4

In our previous eUpdates regarding this case, Part 1 and Part 2, we discussed market misconduct under Hong Kong rules, details of the SFC’s proceedings against Left, the MMT’s findings and the take-away points from the MMT’s rulings. In this eUpdate, we will discuss the MMT’s orders against Left and the Court of Appeal’s decision.

MMT’s orders

In August 2016, the MMT ruled that:

  • the allegations of insolvency and fraudulent accounting in Left’s report were false or misleading and likely to alarm ordinary investors; and
  • Left had made these allegations recklessly or negligently with no understanding of the applicable Hong Kong accounting standards and without checking them with an accounting expert or seeking comment from Evergrande.

Empowered by the Securities and Futures Ordinance (Cap. 571) (the “SFO”) to impose various types of sanctions, in October 2016, the MMT issued a number of orders against Left, including the following:5

  • A “cold shoulder” order, i.e. a ban from trading securities in Hong Kong for the maximum period of five years without the leave of the court6;
  • A “cease and desist order”, i.e. an order not to perpetrate the market misconduct specified in the order7; and
  • An order to disgorge Left’s profit of HK$1,596,240 (equivalent to approximately US$205,701)8 from short sale of shares of Evergrande and to pay the SFC’s investigation and legal costs.

Court of Appeal’s decision

Left appealed against the aforementioned MMT’s determination and orders. In January 2017, the Court of Appeal in Hong Kong dismissed Left’s appeal against the determination of the MMT on questions of fact. The Court of Appeal said that “Left’s application was made out of time”, and that, “even if the application were within time, it had no reasonable prospects of success and was wholly without merit”. The Court of Appeal rejected Left’s contention that there was no evidential basis for the MMT to find that Left was aware of the risk that the allegations in Left’s report were false or misleading as to material facts and that the risk was of such substance it was unreasonable to ignore it. It also rejected the contention that the MMT erred in finding that Left must have been aware that his analysis and logic required expertise in accountancy regulation and standards. Left was ordered to pay the SFC’s costs.9

Left also filed an appeal with the Court of Appeal against the MMT’s findings on points of law under Section 266(1)(a) of SFO, which is expected to be dealt with by the Court separately.10


1 Evergrande is a Mainland Chinese real estate developer listed on the Hong Kong Stock Exchange since November 5, 2009 under stock code 3333. It has since been renamed as “China Evergrande Group”.
2 “Market Misconduct Tribunal finds Andrew Left of Citron Research culpable of market misconduct” by the SFC, August 26, 2016.
3 “Market Misconduct Tribunal bans Andrew Left of Citron Research from trading securities in Hong Kong” by the SFC, October 20, 2016.
4 “Court of Appeal dismisses leave application of Citron Research’s Andrew Left” by the SFC, January 13, 2017.
5 See footnote 3.
6 Under Section 257(1)(b) of the SFO, a “cold shoulder” order is “an order that the person shall not, without the leave of the Court of First Instance, in Hong Kong, directly or indirectly, in any way acquire, dispose of or otherwise deal in any securities, futures contract or leveraged foreign exchange contract, or an interest in any securities, futures contract, leveraged foreign exchange contract or collective investment scheme for the period (not exceeding five years) specified in the order”.
7 Under Section 257(1)(c) of the SFO, a “cease and desist order” is “an order that the person shall not again perpetrate any conduct which constitutes such market misconduct as is specified in the order (whether the same as the market misconduct in question or not)”.
8 In this eUpdate, we used the exchange rate as of February 3, 2017 which was US$1 to HK$7.76.
9 See footnote 4.
10 See footnote 4.