Newsletter – January 2016
- SFC reprimands and fines Lui Chi Hang HK$300,000
- Licence applicant convicted of providing false or misleading information to SFC
- SFC bans Steven John Barrett for 10 months
- Court freezes bank accounts of suspected boiler rooms
- Court finds two solicitors engaged in insider dealing and fraud or deception
- SFC bans Liu Hsiang-wen for eight months
1. SFC reprimands and fines Lui Chi Hang HK$300,000
On 6 January 2016, the SFC after investigation reprimanded and fined Mr Lui Chi Hang HK$300,000 for failing to follow the account opening procedures and for lending money to a client in personal capacity in breach of the SFC Code of Conduct.
Background
The SFC has reprimanded and fined Mr Lui Chi Hang HK$300,000 for account opening failures and lending money to a client.
The disciplinary action follows an investigation by the SFC which found that Lui, a former relationship manager of ABN Amro Bank N.V. (the Bank), failed to follow the account opening procedures required under the Code of Conduct to verify the identities of his clients who resided in Taiwan.
The SFC also found that Lui had a potential conflict of interest by lending money to a client in his personal capacity on three occasions.
The SFC is of the view that Lui’s conduct fell short of the standard expected of him under the Code of Conduct and was also in breach of the Bank’s internal policies.
In deciding the disciplinary sanction, the SFC took into account Lui’s cooperation with the SFC in resolving the disciplinary action and his otherwise clean disciplinary record.
The case was referred to the SFC by the Hong Kong Monetary Authority.
Comment
Paragraph 5.1 of the Code of Conduct for Persons Licensed by and Registered with the SFC (Code of Conduct) requires a licensed or registered person to take all reasonable steps to establish the true and full identity of each of its clients. In particular, when the account opening documents are not executed in the presence of the licensed or registered person, the new client’s identity must be verified by following the procedures set out under paragraph 5.1 of the Code of Conduct.
General Principle 6 of the Code of Conduct requires that a licensed or registered person should try to avoid conflicts of interest, and when they cannot be avoided, should ensure that his clients are fairly treated.
General Principle 2 of the Code of Conduct requires a licensed or registered person to act with due skill, care and diligence, in the best interests of his clients and the integrity of the market.
For a copy of the statement of disciplinary action, please refer to:
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=16PR1
2. Licence applicant convicted of providing false or misleading information to SFC
On 7 January 2016, a licence applicant was convicted of providing false or misleading information in his SFC licence application.
Background
The Eastern Magistrates’ Court convicted Mr Zheng Kai of making false or misleading representations in his licence application to the SFC.
Zheng was fined HK$5,000 after pleading guilty. The court also ordered him to pay the SFC’s investigation costs.
The SFC found that, on 2 September 2014, Zheng made a false or misleading representation in support of his licencing application in that he stated he had resigned from his previous employment. In fact, his previous employer summarily dismissed him because he submitted a false sick leave certificate.
The SFC expects applicants to make full and accurate disclosure of all information required to be submitted with a licence application. Failure of applicants to do so might affect their fitness and properness to be licensed.
Comment
Under section 383 of the Securities and Futures Ordinance, a person commits an offence if he, in support of any application made to the SFC, makes a representation that is false or misleading in a material particular and he knows that, or is reckless as to whether, the representation is false or misleading in a material particular.
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=16PR2
3. SFC bans Steven John Barrett for 10 months
On 13 January 2016, the SFC banned Steven John Barrett for 10 months following investigation of him concealing personal trading activities from his employers.
Background
The SFC has banned Mr Steven John Barrett from re-entering the industry for 10 months from 13 January 2016 to 12 October 2016.
The disciplinary action follows a SFC investigation which found that, from April 2010 to September 2013, Barrett concealed from his two former employers – Black’s Link Capital Limited and Myriad Asset Management Limited – his personal securities transactions by conducting them through the personal securities account of his friend, Fabiano Hugues Joseph Mascolo, a licensed representative of another firm at the material time.
Barrett’s conduct circumvented the employee dealing policies of his employers and made it difficult for them to identify and monitor his personal trading activities to ensure there were no conflicts of interests or other malpractices arising from his personal trading activities.
The SFC considers Barrett’s conduct, which fell short of the standards required of him, calls into question his fitness and properness to be a licensed person.
In deciding the penalty, the SFC has taken into account that Barrett’s concealment of his personal trading activities from his employers was deliberate and dishonest.
Comment
Paragraph 12.2 of the Code of Conduct for Persons Licensed by or Registered with the SFC requires licensed corporations to implement procedures and policies on employee trading and to actively monitor the trading activities in their employees’ accounts and their related accounts.
For a copy of the statement of disciplinary action, please refer to:
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=16PR3
4. Court freezes bank accounts of suspected boiler rooms
On 15 January 2016, the Court of First Instance granted interim injunctions to freeze the bank accounts of suspected fraudulent boiler rooms.
Background
The SFC obtained interim injunctions in the Court of First Instance freezing approximately HK$600,000 in bank accounts suspected of receiving monies from investors of alleged frauds known as boiler rooms.
The Court has also granted the SFC’s application for interim orders to restrain the following entities from holding themselves out as carrying on regulated activities whilst unlicensed and suspending their websites:
- Waldmann Asset Management (Waldmann) using the website www.waldmann-asset-management.com
- Doyle Hutton Associates (Doyle) using the website www.doyle-hutton-associates.com
- Cardell Limited and/or Cardell Company Limited (Cardell) using the website www.cardell-limited.com
The interim orders protect the monies in bank accounts held by Cardan Limited, Cedan Limited, Hamtron Limited and Mutual Hope Limited which allegedly hold the proceeds of unlicensed or boiler room activities being carried out by Waldmann, Doyle and Cardell.
The interim orders will remain in force until the hearing of the SFC’s application for final orders against all the parties, the date of which has yet to be fixed.
The proceedings were brought under section 213 of the Securities and Futures Ordinance (SFO) in which the SFC is seeking final orders against Waldmann, Doyle and Cardell including permanent injunctions and other orders to provide relief to any victims.
The SFC’s investigation is continuing.
Comment
Boiler rooms usually claim to be licensed for regulated securities or futures business and issue related advertisements when they are not licensed or actually in that jurisdiction. Under section 114(1)(b) of the SFO, it is an offence for a person to hold himself out as carrying on a business in a regulated activity without a licence. Under section 109 of the SFO, it is an offence to issue a related advertisement.
The usual way a boiler room works is that they call investors claiming to be in Place A, but are actually in Place B. They ask the investors to invest in a financial product in Place C and to send money to an account in Place D. Often a boiler room will transfer money received from the investors from an account in one place to an account in another place almost as soon as it has been received. By the time the fraud has been discovered, the money has disappeared or been transferred out of reach.
There is an Alert List on the SFC website which lists firms which are unlicensed in Hong Kong and are suspected to be targeting Hong Kong investors or claim to have an association with Hong Kong.
For the SFC’s alert list, please refer to:
http://www.sfc.hk/web/EN/alert-list/
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=16PR4
5. Court finds two solicitors engaged in insider dealing and fraud or deception
On 15 January 2016, two solicitors were convicted by the Court of First Instance of engaging in insider dealing and fraud or deception in transactions.
Background
The Court of First Instance found that two solicitors, Mr Eric Lee Kwok Wa and Ms Betty Young Bik Fung, and Eric Lee’s sister, Ms Patsy Lee Siu Ying, contravened the Securities and Futures Ordinance (SFO) by insider dealing in the shares of Asia Satellite Telecommunications Holdings Ltd (Asia Satellite) and engaged in fraud or deception in transactions involving securities of Hsinchu International Bank Company Ltd (Hsinchu Bank).
The court’s decision is a landmark ruling on the interpretation of section 300 of the SFO which prohibits the use of fraudulent or deceptive schemes in transactions involving securities.
The SFC started civil proceedings in the court against Eric Lee, Betty Young, Patsy Lee and Ms Stella Lee, both sisters of Eric Lee, in December 2010 under section 213 of the SFO and alleged the defendants made a total profit of HK$2.9 million in these transactions.
The SFC alleged that, in relation to Hsinchu Bank transactions in September 2006:
- Betty Young obtained information about a tender offer for Hsinchu Bank shares while working as a lawyer seconded to a client of her employing law firm;
- the client she was seconded to intended to make the tender offer and she was working on the offer;
- the information about the offer was non-public, confidential and materially price sensitive;
- subsequently, Betty Young bought Hsinchu Bank shares and tipped off Eric Lee and his sisters to buy the shares before the announcement of the tender offer; and
- this amounted to fraud or deception under section 300 of the SFO because Betty Young owed duties to her employer and their client including the duty to refrain from using such information for personal gain.
The SFC further alleged that, in relation to Asia Satellite transactions in February 2007:
- Eric Lee obtained information about the proposed privatization of Asia Satellite shares when the law firm he worked for advised on this transaction;
- that information was non-public, confidential and materially price sensitive;
- subsequently Eric Lee tipped off Betty Young and his sisters to buy Asia Satellite shares before the announcement of the proposed privatization; and
- this amounted to insider dealing under section 291 of the SFO.
The court found that these allegations were proven against Betty Young, Eric Lee and Patsy Lee.
The court ruled that there was not enough evidence to prove the allegations against Stella Lee. Nevertheless, the court may exercise its power under section 213 of the SFO against her to remove the illicit profit from her and restore the victims in the transactions. The court may make orders under section 213 against people who are knowingly or otherwise involved in a contravention of the SFO.
The SFC and the defendants are directed to jointly work out the precise terms of the final orders in view of the judgment.
The court also directed that a copy of the judgement be sent to the Law Society of Hong Kong because Eric Lee and Betty Young are both member of the Law Society.
For a copy of the court judgment (HCMP 2575/2010), please refer to:
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=16PR5
6. SFC bans Liu Hsiang-wen for eight months
On 25 January 2016, Liu Hsiang-wen was banned for eight months by the SFC for failing to disclose her criminal conviction.
Background
The SFC has banned Ms Liu Hsiang-wen from re-entering the industry for eight months from 19 January 2016 to 18 September 2016.
The SFC found that Liu had failed to notify the SFC of her criminal conviction in Taiwan in 2010 for promoting and selling offshore funds to Taiwan investors without regulatory approval when she was a licensed representative accredited to CITIC Securities Brokerage (HK) Limited and CITIC Securities Futures (HK) Limited.
The SFC also found that Liu had made false declarations to the Bank of East Asia Limited, her subsequent employer, in that she did not disclose the criminal conviction in the job application form and self-declaration form submitted to the bank in 2012.
The Hong Kong Monetary Authority has provided assistance in the investigation of this case.
Comment
Section 4 of the Securities and Futures (Licensing and Registration) (Information) Rules requires a licensed representative to give notice in writing to the SFC within seven days where there is change to the relevant information, including criminal charge in Hong Kong or elsewhere, of the licensed representative.
For a copy of the statement of disciplinary action, please refer to:
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=16PR6
The article is for general information purpose only and is not intended to constitute legal or other professional advice.
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