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Hong Kong’s financial regulator has launched criminal proceedings in an insider dealing case against hedge fund Segantii Capital Management and its founder and director, Blackpool Football Club owner Simon Sadler.
The Chinese territory’s Securities and Futures Commission said on Thursday it had also started proceedings against former Segantii trader Daniel LaRocca.
According to an SFC statement, the charges relate to dealing in the shares of an unnamed company listed on the Hong Kong Stock Exchange before a block trade in June 2017. A block trade is an off-market purchase or sale of a large amount of shares in a single transaction.
“This is a big deal. It’s rare to see criminal charges of this magnitude brought against a prominent fund manager,” said Kher Sheng Lee, Asia-Pacific co-head of the Alternative Investment Management Association, a hedge fund industry body.
Sadler and LaRocca did not make any pleas at a court hearing on Thursday, the SFC said. Sadler was released on cash bail of HK$1mn ($128,000) and LaRocca on bail of HK$500,000, it said, adding that the case had been adjourned to June 12.
“Segantii intends to defend itself vigorously against the charge,” a spokesperson for the hedge fund said. Sadler and LaRocca could not be reached for comment.
Sadler founded the fund in 2007 and quickly built it into one of Asia’s largest and best-known hedge funds with offices in Hong Kong, New York and London and more than $6bn in assets.
The Hong Kong company became a big player in block trading, a lucrative corner of financial markets where banks arrange to offload large chunks of stocks through private arrangements so as not to depress a company’s share price.
Segantii was known to be among the most prolific buyers of blocks, and Sadler built strong relationships with big banks as a go-to liquidity provider.
However, block trading came under intense scrutiny after the collapse of Bill Hwang’s family office Archegos Capital Management in March 2021 when banks, including Goldman Sachs, Credit Suisse, Morgan Stanley and Nomura, were left with billions of dollars worth of stock in a handful of companies to offload.
The episode cast a spotlight on block trading and how information is shared between banks and hedge funds, which spurred US regulators to investigate the Wall Street practice.
In January, Morgan Stanley agreed to pay $249mn to settle federal investigations into misconduct at its block trading business and one of its former top investment bankers admitted to leaking confidential information to clients.
The US Securities and Exchange Commission issued the former head of Morgan Stanley’s US equity syndicate desk, Pawan Passi, with a $250,000 civil penalty and barred him from working in the industry.
The investigations into Wall Street banks’ handling of the privately negotiated block sales unsettled a market not accustomed to the spotlight.
In 2022, the Financial Times revealed that Bank of America and Citigroup had suspended equity trading with Segantii due to concerns about the hedge fund’s bets on the sale of blocks of shares.
The banks’ moves were a rare roadblock for 54-year-old Sadler, whose ambitious risk-taking has reaped large rewards, both at his hedge fund and elsewhere.
In 2019, Sadler bought his ailing hometown football club Blackpool FC for £10mn after years of troubled finances. The club later won promotion to the Championship, the division just below the Premier League, but was relegated back to League One last year.
Additional reporting by Cheng Leng in Hong Kong and Costas Mourselas in London