Newsletter – June 2016
- SFC reprimands and fines Guotai Junan Securities (Hong Kong) Limited HK$1.3 million
- SFC reprimands and fines SynerWealth Financial Limited HK$2.7 million
- SFC obtains disqualification orders against former senior executives of China Best Group Holding Limited
- SFC issues Restriction Notice to a broker to stop a client from withdrawing shares and transferring money connected with suspected insider dealing
- Court rules on appeals over unlicensed activities
- SFC reprimands and fines Schroder Investment Management (Hong Kong) Limited HK$1.8 million for disclosure failures
- SFC reprimands and fines State Street Global Advisors Asia Limited HK$4 million over management of Tracker Fund
1. SFC reprimands and fines Guotai Junan Securities (Hong Kong) Limited HK$1.3 million
On 30 May 2016, Guotai Junan Securities (Hong Kong) Limited (“Guotai Junan”) was reprimanded and fined HK$1.3 million by the SFC for non-compliance with the regulatory requirements in relation to ascertaining client identity.
Background
In July 2014, the SFC requested Guotai Junan to provide details of the ultimate clients of certain transactions it effected for an intermediary client in Korea. Guotai Junan was unable to provide the requested information within two business days of the request pursuant to the Client Identity Rule Policy, due to the intermediary client’s failure to comply with its obligation under its client agreement.
The intermediary client informed the SFC and Guotai Junan on 1 August 2014 that as a matter of Korean law, it could not provide the requested client identity information without its clients’ written consent. It was not until January 2015 that Guotai Junan provided the requested information to the SFC.
Notwithstanding this, Guotai Junan continued to effect more than 8,000 transactions for the intermediary client between August 2014 and January 2015 despite having been reminded by the SFC of its obligation to refuse the business of those who are not prepared to provide ultimate client information to the regulators.
In the circumstances, the SFC found that at the time when Guotai Junan effected those transactions, it could no longer be satisfied on reasonable grounds that it would be able to make available the ultimate client information in relation to such transactions to the SFC on request, which is in contravention of the Client Identity Rule Policy.
In deciding the sanctions, the SFC took into account all relevant circumstances, including, Guotai Junan:
- co-operated with the SFC in resolving the disciplinary proceedings; and
- has agreed to conduct an independent review of its systems and controls in respect of its compliance with the regulatory requirements on ascertaining client identity.
Comments
Guotai Junan is licensed to carry on Type 1 (dealing in securities) and Type 4 (advising on securities) regulated activities under the Securities and Futures Ordinance (SFO).
Reader is reminded that, under paragraph 5.4 of the Code of Conduct for Persons Licensed by or Registered with the SFC, the Client Identity Rule Policy explains the client identity rule, and the general approach the SFC will take in enforcing the client identity rule.
Under its client agreement with Guotai Junan, the intermediary client:
(a) agreed to provide ultimate client information to the SFC, the Stock Exchange of Hong Kong and/or the Hong Kong Futures Exchange (“the Regulators”), within two business days of a request; and
(b) confirmed that they and their clients have waived the benefit of any law which prohibited the provision of ultimate client information to the Regulators.
The Client Identity Rule Policy stipulates that a licensed person must refuse the business of those who are not prepared to provide client identity information to the Regulators upon request (paragraph 23). The Client Identity Rule also stipulates that if a licensed person has been put on notice that some intermediary in the chain of intermediaries involved in a transaction might not comply with its agreement in relation to that transaction so that the licensed person could no longer be satisfied on reasonable grounds that the information would be available to the Regulators on request and continued to deal with that intermediary, the SFC would consider taking disciplinary action against the licensed person (paragraph 27).
For a copy of the statement of disciplinary action, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/enforcement-news/openAppendix?refNo=16PR49&appendix=0
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/enforcement-news/doc?refNo=16PR49
2. SFC reprimands and fines SynerWealth Financial Limited HK$2.7 million
On 31 May 2016, SynerWealth Financial Limited (“SynerWealth”) was reprimanded and fined HK$2.7 million for internal control failures relating to short selling orders and for failing to report the deficiencies of its trading system to the SFC in a timely manner as required under the SFC’s Code of Conduct.
Background
The SFC’s investigation found that from November 2012 to January 2014, there were at least 65 instances of short sales executed by SynerWealth which resulted from its failure to put in place effective internal control procedures to detect and prevent short selling.
The SFC also found that SynerWealth identified deficiencies in its self-developed trading system as early as January 2013, but it failed to report the material errors or defects of the system to the SFC.
In deciding the disciplinary sanction, the SFC took into account all relevant circumstances of the case, including that:
- adequate and effective internal control systems are fundamental to the fitness and properness of a licensed corporation;
- SynerWealth’s failures lasted for about 14 months; and
- SynerWealth had an otherwise clean disciplinary record.
Comments
SynerWealth is licensed to carry on business in Type 1 (dealing in securities) regulated activity under the Securities and Futures Ordinance (SFO).
Reader is reminded that, under paragraph 12.5 of the Code of Conduct for Persons Licensed by or Registered with the SFC, a licensed or registered person is required to report to the SFC immediately on the happening of any material failure, error or defect in the operation or functioning of its trading, accounting, clearing or settlement systems or equipment.
For a copy of the statement of disciplinary action, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/enforcement-news/openAppendix?refNo=16PR50&appendix=0
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/enforcement-news/doc?refNo=16PR50
3. SFC obtains disqualification orders against former senior executives of China Best Group Holding Limited
On 31 May 2016, the SFC obtained disqualification orders in the Court of First Instance against three former senior executives of China Best Group Holding Limited (“China Best”) for breaching their directors’ duties in handling a proposed acquisition of interests in a coal mine in 2008.
Background
The Court earlier found that that Mr. Wang Jian Hua, former advisor to the board of China Best, had diverted to himself the corporate opportunity of a proposed acquisition of 60% of the equity interest in ChongHou Energy Resources Limited from Asset Rich International Limited (“Asset Rich”), a company ultimately owned by a nominee of Wang and therefore not third parties independent of China Best.
Wang was also found to have devised a scheme to conceal his personal benefit in the proposed acquisition at the expense of China Best and failed to disclose his interest to China Best’s board and in the issue of two false and misleading announcements dated 3 March and 3 December 2008.
The Court also found that Wang’s wife, Ms. Ma Jun Li, former chairman and executive director of China Best, and Mr. Zhang Da Qing, former chief executive officer and executive director of China Best, had failed to make reasonable enquiries in respect of Asset Rich’s and its ultimate beneficial shareholder’s background and connection with Wang and had wrongfully authorized the issue of the two announcements.
The Court has ordered be disqualified Wang from being a director or being involved in the management of any listed or unlisted company in Hong Kong, without leave of the Court, for 10 years. Ma and Zhang were both disqualified for six years.
In making the disqualification orders, the Court considered the gravity of Wang’s misconduct, his role as part of the senior management of the company and the fact that the proposed acquisition was a very substantial acquisition for China Best under the Listing Rules of the Stock Exchange of Hong Kong. The disqualification period imposed for Ma and Zhang took into account their failure to make enquiries and inform themselves about the company’s affairs and to exercise care and diligence in the proposed acquisition.
Comments
Wang was the chairman and an executive director of China Best until he resigned with effect from 25 November 2005. Notwithstanding his resignation, Wang held a position of advisor to the board of China Best and remained part of the senior management at material times. Ma was appointed as an executive director of China Best on 29 August 2003 and was elected as the chairman on 25 November 2005. Zhang was appointed as China Best’s chief executive officer and an executive director on 5 June 2007. Both Ma and Zhang had resigned from China Best with effect from 4 October 2011.
China Best was listed on the Main Board of the Stock Exchange of Hong Kong Limited on 26 March 1996. The principal activities of China Best’s associates and subsidiaries were coal processing, international air and sea freight forwarding and the provision of logistics services as well as trading of securities.
Readers are reminded that, Under section 214 of the SFO, the Court may make orders disqualifying a person from being a company director or being involved, directly or indirectly, in the management of any corporation for up to 15 years, if the person is found to be wholly or partly responsible for the company’s affairs having being conducted in a manner involving defalcation, fraud or other misconduct.
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/enforcement-news/doc?refNo=16PR52
4. SFC issues Restriction Notice to a broker to stop a client from withdrawing shares and transferring money connected with suspected insider dealing
On 3 June 2016, Kingsway Financial Services Group Limited was prohibited from processing shares and cash of a client due to suspected insider dealing in accordance to the Restriction Notice issued by the SFC.
Background
The SFC has issued a Restriction Notice to Kingsway Financial Services Group Limited (“KFS”) prohibiting it from processing cash and shares held in a client account that holds proceeds of suspected insider dealing.
KFS is not subject to the SFC’s investigation into suspected insider dealing and the Restriction Notice does not affect KFS’s operations or its other clients. KFS has rendered full assistance to the SFC during the investigation.
The Restriction Notice prohibits KFS, without prior written consent from the SFC, from processing any instructions from the client (or anyone authorized to operate the account) with respect to the shares of a Hong Kong-listed company, including: (i) withdrawing the shares and/or transferring monies arising from the disposal of the shares; and/or (ii) disposing or dealing with the shares. KFS is also required to notify the SFC upon receipt of any of these instructions.
The SFC considers that the issue of the Restriction Notice, which prevents dissipation of proceeds of suspected insider dealing held in the account, is desirable in the interest of the investing public or in the public interest. Therefore, the investigation is continuing.
Comments
KFS is licensed to carry on Type 1 (dealing in securities), Type 2 (dealing in futures contracts), Type 4 (advising on securities) and Type 9 (asset management) regulated activities under the SFO.
Readers are reminded that, under the Restriction Notice, pursuant to sections 204 and 205 of the SFO, a licensed corporation is prohibited from entering into transactions of a specified description or other than of a specified description, or entering into transactions in specified circumstances or other than in specified circumstances, or entering into transactions to a specified extent or other than to a specified extent, which required the licensed corporation to carry on business in, and only in, a specified manner; and to prohibit the licensed corporation from dealing with any relevant property in a specified manner or other than in a specified manner.
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/enforcement-news/doc?refNo=16PR53
5. Court rules on appeals over unlicensed activities
On 6 June 2016, C.L. Management Services Limited (“C.L. Management”) and its sole owner and director Ms Clarea Au Suet Ming’s appeal was dismissed by the court. At the same time, the SFC’s appeal on a point of law against the decision of the Eastern Magistracy was also dismissed.
Background
On 29 April 2014, C.L. Management and Au were convicted on three counts of holding out charges and acquitted of one count of carrying on a business in advising on corporate finance without a licence. They were fined a total of HK$1.5 million and Au was sentenced to a total of 6 months’ imprisonment suspended for 18 months.
C.L. Management and Au appealed against their conviction. At the same time, the SFC appealed against the decision of the Eastern Magistracy in acquitting them.
Both appeals were dismissed as the Court found that there are no merits in any of the grounds advanced on behalf of them.
Comments
Readers are reminded that under the Securities and Future Ordinance (SFO), advising on corporate finance is a regulated activity which requires a Type 6 (Advising on Corporate Finance) licence from the SFC.
Furthermore, under section 114(1)(a) and 114(8) of the SFO, a person commits an offence when the person, without reasonable excuse, carries/carried on a business in a regulated activity without a licence.
This is well noted from this decision that the offence of carrying on a business of regulated activity without a licence does not require proof of a mental element. Thus, it is important to ensure that the Licensed Corporation and the all its staff members are properly licensed with the relevant licence.
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/enforcement-news/doc?refNo=16PR56
6. SFC reprimands and fines Schroder Investment Management (Hong Kong) Limited HK$1.8 million for disclosure failures
On 15 Jun 2016, Schroder was reprimanded and fined HK$1.8 million over interest disclosure failures which led to breaches of the SFO.
Background
The SFC has reprimanded and fined Schroder Investment Management (Hong Kong) Limited (“Schroder”) HK$1.8 million for failing to disclose all notifiable interests in Hong Kong listed shares.
An SFC investigation found that from August 2005 to January 2013, Schroder failed to disclose to the Stock Exchange of Hong Kong Limited (“SEHK”) and the relevant listed companies all notifiable interests in Hong Kong listed shares held in client portfolios and managed by Schroders plc and certain of its subsidiaries (“Schroder Entities”) where they did not have or were unable to exercise proxy voting rights. Schroder is responsible for preparing and filing the notices disclosing all notifiable interests in Hong Kong listed shares for the Schroder Entities to SEHK and the relevant listed companies.
Although legal advice obtained by Schroder advised that an “interest” in shares was broadly defined and was not confined to the exercise of a voting right, Schroder failed to properly follow the advice.
According to Schroder, it discovered the disclosure failures in November 2012 when it was preparing to implement a new global system for the monitoring and reporting of disclosable interests in shares. In February and March 2013, Schroder filed a total of 236 substantial shareholders notices to the SEHK to correct the disclosure notices filed for the Schroder Entities from July 2010 to January 2013.
In deciding the penalty, the SFC took into account the duration and extent of Schroder’s disclosure failings, Schroder’s self-report to the SFC upon discovery of its disclosure failings, Schroder’s co-operation with the SFC’s investigation and disciplinary process and that it has taken steps to improve its global system for monitoring and disclosing shares in Hong Kong listed companies and its clean disciplinary record.
Comments
Schroder is a licensed corporation under the Securities and Futures Ordinance to carry on Type 1 (dealing in securities), Type 4 (advising in securities) and Type 9 (asset management) regulated activities.
Schroders plc is a company incorporated in England and Wales which carries on asset management business together with its subsidiaries on a global basis. The Schroder Entities invest directly in Hong Kong listed shares for their clients.
Readers are reminded that, under Section 310(1) of the Securities and Futures Ordinance (“SFO”), a person comes under a duty of disclosure if he/she acquires an interest in or ceases to be interested in shares in the relevant share capital of a listed corporation, or where a change occurs affecting a person’s existing interest in shares in a listed corporation’s share capital in specified circumstances.
Under Section 313(1) of the SFO, those specified circumstances include where the person: (a) first acquires a notifiable interest; (b) ceases to have a notifiable interest; (c) has a notifiable interest but the percentage levels of his interest have changed; (d) has a notifiable interest but the nature of his interest has changed.
According to Section 315 of the SFO, the notifiable percentage level for notifiable interests is 5% and the specified percentage level for changes to notifiable interests is 1%.
Furthermore, under General Principle 7 of the SFC Code of Conduct, a licensed corporation should comply with all regulatory requirements applicable to the conduct of its business activities so as to promote the best interests of clients and the integrity of the market.
Paragraph 12.1 of the Code of Conduct also provides that a licensed corporation should comply with, and implement and maintain measures appropriate to ensuring compliance with, the law and relevant regulatory requirements.
For a copy of the statement of disciplinary action, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/openAppendix?refNo=16PR59&appendix=0
For more information about the requirements for disclosure of interests, please refer to:
http://en-rules.sfc.hk/net_file_store/new_rulebooks/h/k/HKSFC3527_4511_VER20.pdf
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=16PR59
7. SFC reprimands and fines State Street Global Advisors Asia Limited HK$4 million over management of Tracker Fund
On 15 June 2016, State Street Global Advisors Asia Limited was reprimanded and fined HK$4 million by the SFC for its failure to comply with the requirements in in the management of Tracker Fund of Hong Kong.
Background
The SFC has reprimanded and fined State Street Global Advisors Asia Limited (“SSGA”) HK$4 million for its failure to comply with regulatory requirements in the management of Tracker Fund of Hong Kong (“Fund”).
An SFC investigation found that from 1 December 2008 to 30 June 2013 (relevant period), the cash balances of the Fund that were deposited with State Street Bank and Trust Company’s (“SSBT”) demand deposit account did not earn any interest because SSBT’s deposit rates on Hong Kong dollars were zero. SSBT was the Fund’s trustee and an affiliate of SSGA. SSGA did not check the rate of interest offered by other banks.
According to the SFC’s investigation findings, the prevailing commercial interest rates on Hong Kong dollars (“HKD”) for a deposit of the same size and term as the Fund’s cash balances were above zero during the Relevant Period.
The SFC considers that SSGA had failed to ensure that interest received on the Fund’s Hong Kong dollar cash balances from its connected person was at a rate not lower than the prevailing commercial rate for a deposit of that size and term as required by the Code on Unit Trusts and Mutual Funds (“UT Code”).
The SFC also found that SSGA’s internal procedures on the management of the Fund’s cash balances were inadequate. By not following the requirements of the UT Code and the Trust Deed when depositing the Fund’s cash balances with SSBT, SSGA had failed to manage and minimise the conflict between the interests of the Fund’s investors and the interests of SSGA/SSBT.
The SFC further found that SSGA had wrongly represented in six interim and annual reports of the Fund that the Fund’s cash balances were placed in a non-interest bearing current account when in fact the cash was deposited with SSBT in an interest bearing account earning zero interest.
In deciding the sanctions, the SFC took into account that SSGA:
- co-operated with the SFC in resolving the SFC’s concerns;
- agreed to make a voluntary payment of HK$318,315 into the Fund;
- agreed to engage an independent reviewer to conduct an internal controls review of the cash management policy and procedures of SFC-authorized funds managed by SSGA; and
- has a clean disciplinary record in relation to its regulated activities.
Comments
SSGA is licensed to carry on Type 1 (dealing in securities), Type 2 (dealing in futures contracts), Type 4 (advising on securities), Type 5 (advising on futures contracts), and Type 9 (asset management) regulated activities under the SFO.
The SFC concluded that SSGA failed to ensure prevailing commercial interest rates was received from a connected person, unable to maintain internal controls, failed to manage and minimize the conflict of interests, and provided misstatements in annual and interim reports of the Fund.
Readers are reminded that under paragraph 1.2(c) of the of the Fund Manager Code of Conduct, a fund manager is required to maintain satisfactory internal controls and written compliance procedures which address all applicable regulatory requirements; and under paragraph 10.10 of the UT Code, if cash forming part of the scheme’s assets is deposited with the trustee/custodian, the management company, the investment adviser or with any connected person of these companies (being an institution licensed to accept deposits), interest must be received on the deposit at a rate not lower than the prevailing commercial rate for a deposit of that size and term.
Furthermore, under General Principle 4 of the Overarching Principles Section of the SFC Products Handbook, Product Providers, counterparties and service providers should avoid being placed in a conflict of interest position that may undermine the interests of the investors of the relevant product, and Product Provider should avoid situations where conflicts of interest may arise including any actual or potential conflicts that may arise between different parties in respect of a product.
For a copy of the statement of disciplinary action, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/openAppendix?refNo=16PR61&appendix=0
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=16PR61
The article is for general information purpose only and is not intended to constitute legal or other professional advice.
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Newsletter – May 2016
- Licence applicant Chiu Sing Ho convicted of providing false information to SFC
- SFC reprimands and fines Solid King Securities Limited HK$700,000
- SFC bans Yeung Chun Him for 12 months
- Takeovers Panel rules on breach of Takeovers Code by a subsidiary of Alibaba Group Holding Limited
- Administrators complete distribution of restoration payments to investors affected by Tiger Asia’s insider dealing
- SFC publicly criticises China New Way Investment Limited and related parties for breach of Takeovers Code
1. Licence applicant Chiu Sing Ho convicted of providing false information to SFC
On 28 April 2016, Mr Chiu Sing Ho was convicted and fined HK$10,000 by the Court for making false or misleading representations when making licence applications to the SFC.
Background
The Eastern Magistrates’ Court convicted Mr Chiu Sing Ho of making false or misleading representations in his two licence applications to the SFC.
Chiu was fined HK$10,000 and ordered to pay the SFC’s investigation costs after pleading guilty.
The SFC found that, in November 2012 and December 2014, Chiu did not disclose to the SFC his previous criminal conviction in two licence applications.
The SFC expects applicants to make full and accurate disclosure of all information required in a licence application. Failure of applicants to do so might affect their fitness and properness to be licensed.
Comments
Readers are reminded that, pursuant to section 383 of the Securities and Futures Ordinance, applicants are required to disclose all prior criminal convictions, including those which the Rehabilitation of Offenders Ordinance (Cap 297) applies to, disciplinary sanctions in relation to any trade, business or profession and whether they have been investigated by a local or foreign regulatory or criminal investigatory body.
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=16PR40
2. SFC reprimands and fines Solid King Securities Limited HK$700,000
On 3 May 2016, Solid King was reprimanded and fined HK$700,000 by the SFC for its failure to comply with the requirements as to telephone recording and internal control procedures under the SFC Code of Conduct.
Background
The SFC has reprimanded Solid King Securities Limited (Solid King) and fined it HK$700,000 for failing to comply with the telephone recording requirements under the Code of Conduct and put in place effective internal control procedures to safeguard its telephone recording system and monitor its clients’ telephone orders.
The SFC’s investigation found that Solid King had failed to record client order instructions received through one of its telephone extension lines between May 2013 and January 2014 (relevant period) as the telephone machine concerned was disconnected from Solid King’s telephone recording system due to a loose electric cable.
During the relevant period, Solid King did not conduct any routine checks on its telephone recording system, nor did it review the recordings of client telephone orders on a regular basis. The loose electric cable was detected and re-attached to the telephone recording system by Solid King on 2 January 2014 and it discovered that its telephone recording system had failed to record client order instructions during the relevant period when it was required by the SFC on 8 January 2014 to produce the telephone recordings of certain client orders. As a result of the undetected defect in its telephone recording system, Solid King was unable to produce the telephone recordings required by the SFC.
Telephone recording of client orders is an integral part of an intermediary’s audit trails. It protects the interests of both the intermediary and its clients and serves as an effective compliance monitoring tool for preventing or detecting irregularities or fraudulent activities. Solid King’s failures have called into question its fitness and properness as an SFC licensee.
Comments
Solid King is licensed to carry on Type 1 (dealing in securities) and Type 4 (advising on securities) regulated activities under the Securities and Futures Ordinance.
Readers are reminded that, under paragraph 3.9(b) of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, a licensed or registered person is required to: (i) use a telephone recording system to record the order instructions that are received from clients through the telephone; and (ii) maintain the telephone recordings as part of its records for at least six months.
The SFC explained that the rationale behind the requirement for tape recording a client’s orders is to ensure there is reliable evidence to fall back on when assessing any dispute between a broker and its client concerning the particulars of a trade order. The SFC is of the view that the telephone requirements protect the interests of both the broker and the client.
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=16PR41
3. SFC bans Yeung Chun Him for 12 months
On 6 May 2016, Yeung Chun Him was banned by the SFC for 12 months following investigation of him transferring client data for inappropriate purposes and thus breaching the SFC Code of Conduct and the Personal Data (Privacy) Ordinance.
Background
The SFC has banned Mr Yeung Chun Him from re-entering the industry for 12 months from 6 May 2016 to 5 May 2017 for transferring client data for purposes other than for which the data was collected, in breach of the Code of Conduct and the Personal Data (Privacy) Ordinance.
At the material time, Yeung was an Associate Portfolio Manager of Hong Kong and Shanghai Banking Corporation Limited (HSBC) responsible for opening accounts for small and medium-sized enterprise clients and promoting investment and insurance products.
The SFC found that:
- on his last working day with HSBC on 13 December 2013, Yeung sent data concerning 1,540 customers (Client Information) from his HSBC email to his personal email;
- Yeung then sent the Client Information from his personal email to his email at China Construction Bank (Asia) Corporation Limited (CCB) on the first day of his new job on 16 December 2013;
- Yeung would be serving similar corporate clientele at CCB and he considered that the Client Information would facilitate his new job; and
- upon the request of HSBC, CCB deleted the emails attaching the Client Information from its email server.
The SFC is of the view that Yeung’s conduct has called into question his fitness and properness to remain a licensed or registered person.
The case was referred to the SFC by the Hong Kong Monetary Authority.
Comments
Yeung was a relevant individual engaged by HSBC to carry on Type 1 (dealing in securities) and Type 4 (advising on securities) regulated activities. Yeung is currently not registered with the Hong Kong Monetary Authority or licensed by the SFC.
Readers are reminded that, under General Principle 2 of the SFC Code of Conduct, a licensed or registered person should act with due skill, care and diligence, in the best interests of its clients and the integrity of the market when conducting its business activities.
Furthermore, under paragraph 12.1 of the Code of Conduct, a licensed or registered person should comply with, and implement and maintain measures appropriate to ensuring compliance with the law, rules, regulations and codes administered or issued by the Commission, the rules of any exchange or clearing house of which it is a member or participant, and the requirements of any regulatory authority which apply to the licensed or registered person.
Principle 3 of the Data Protection Principles of the Personal Data (Privacy) Ordinance provides that personal data shall not, without the prescribed consent of the data subject, be used for any purpose other than – (a) the purpose for which the data were to be used at the time of the collection of the data, or (b) a purpose directly related to the purpose referred to in paragraph (a).”
In light of the above, the SFC reached the decision to take disciplinary action against Yeung.
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=16PR42
4. Takeovers Panel rules on breach of Takeovers Code by a subsidiary of Alibaba Group Holding Limited
On 18 May 2016, the Takeovers and Mergers Panel ruled that a subsidiary of Alibaba was in breach of the Takeovers Code during an acquisition action.
Background
The Takeovers and Mergers Panel (Takeovers Panel) published its written decision setting out the reasons for its ruling that Alibaba Group Holding Limited (Alibaba Group) has breached the Takeovers Code in its acquisition of CITIC 21CN Company Limited (CITIC 21CN), later renamed as Alibaba Health Information Technology Limited.
The Takeovers Panel found that during the acquisition process, Alibaba Group entered into certain agreements with a shareholder of CITIC 21CN, namely Mr Chen Wen Xin, to acquire his solely owned Hebei Huiyan Medical Technology Co. Ltd. Mr Chen is the younger brother of Ms Chen Xiao Ying, an executive director and vice chairman of CITIC 21CN.
The Takeovers Panel ruled that the agreements between Alibaba Group and Mr Chen constituted a special deal with favourable conditions which were not extended to all shareholders and was a clear breach of the Takeovers Code.
The Takeovers Panel also found that in consequence the whitewash waiver granted to Alibaba Group was invalidated and therefore a mandatory general offer obligation has been triggered unless waived.
However, in light of the difficulties in placing a precise value on the favourable conditions received by Mr Chen, and the prevailing market price CITIC 21CN’s shares since the whitewash transaction was announced, the Takeovers Panel noted that any additional value to the subscription price Alibaba Group paid to acquire a majority interest in CITIC 21CN was most unlikely to be material in the context, and therefore waived the mandatory general offer obligation.
Comments
Readers are reminded that, under the Takeovers Code, special deals are generally not permitted unless the Takeovers Executive provides the requisite consent. This reflects a fundamental principle in the Takeovers Code – General Principle 1 which states that “all shareholders are to be treated even-handedly and all shareholders of the same class are to be treated similarly.” In order to give effect to this General Principle, Rule 25 of the Takeovers Code prohibits transactions between an offeror, or potential offeror, and parties acting in concert with it and a shareholder in the offeree company.
For a copy of the Panel’s decision, please refer to:
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=16PR45
5. Administrators complete distribution of restoration payments to investors affected by Tiger Asia’s insider dealing
On 19 May 2016, the process of distributing restoration payments back to investors affected by Tiger Asia’s insider dealing case had been completed in accordance to restoration orders made by the Court.
Background
The court appointed administrators have completed the process of returning HK$43.7 million to more than 1,500 investors affected by the insider dealing of Tiger Asia Management LLC and two of its senior officers, Bill Hwang and Raymond Park (Tiger Asia parties).
The payments were made under restoration orders made by the court following admissions of insider dealing and manipulation by the Tiger Asia parties in December 2013 in proceedings brought by the SFC under section 213 of the Securities and Futures Ordinance (SFO).
A total of HK$43,708,828 or 97% out of the restoration fund HK$45,266,610 has been paid out to 1,591 local and overseas investors. The SFC and the administrators have taken all reasonable steps to contact the remaining 209 investors with no success. The remaining sum of HK$1,408,487 was returned to the Tiger Asia parties with the approval of the court.
The purpose of the restoration orders is to make insider traders financially accountable to those with whom they trade and to restore those counterparties to the financial position they were in before the transactions.
Comments
Tiger Asia was founded in 2001 and is a New York-based asset management company that specialises in equity investments in China, Japan and Korea. All of its employees are located in New York. Tiger Asia has no physical presence in Hong Kong.
On 20 Dec 2013, the Court of First Instance ordered Tiger Asia Management LLC (Tiger Asia) and two of its senior officers, Mr Bill Sung Kook Hwang and Mr Raymond Park (collectively the Tiger Asia parties), to pay a total of HK$45,266,610 to investors affected by their insider dealing involving two Hong Kong-listed banking stocks.
The court orders followed admissions by the Tiger Asia parties in a statement of agreed and admitted facts filed in the Court of First Instance by the SFC in its proceedings under section 213 of the SFO that they contravened Hong Kong’s laws prohibiting insider dealing when dealing in the shares of Bank of China Limited (BOC) and of China Construction Bank Corporation (CCB) in December 2008 and January 2009 and manipulated the price of CCB shares in January 2009.
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=16PR46
6. SFC publicly criticises China New Way Investment Limited and related parties for breach of Takeovers Code
On 26 May 2016, the SFC publicly criticises China New Way Investment Limited as offeror and its related parties for acquiring shares in a company after the close of an offer and at above the offer price which breaches Rule 31.3 of the Takeovers Code.
Background
The SFC publicly criticised China New Way Investment Limited (“the Offeror”), Mr Wei Judong, Mr Zhang Xiaoliang, Ms Yang Weizhi, Mr Wei Lidong and Mr Xu Jianhua (“collectively referred to as the Parties”) for acquiring shares in China City Construction Group Holdings Limited, formerly known as Chun Wo Development Holdings Limited (“the Company”) within six months after the close of an offer at above the offer price in contravention of the Takeovers Code.
The Offeror is wholly owned by New Way International Investment Holdings Limited which in turn is beneficially owned by Wei Judong, Zhang, Yang and Huinong Financial Holdings Limited (a company indirectly wholly-owned by Wei Lidong), who each holds 25% of its issued shares. At the material time, Xu was the sole director of the Offeror.
On 2 January 2015, the Offeror made an unconditional mandatory general offer in cash for the Company’s shares at HK$1.099 per share. The offer closed on 23 January 2015.
On 6 and 7 July 2015, the Offeror made a series of on-market acquisitions of a total of 2,930,000 shares of the Company at prices ranging from HK$1.19 to $1.50 per share.
The Parties submitted that the breaches were not intentional but accepted that they have breached the Takeovers Code and agreed to the current disciplinary action taken against them.
Comments
The Company’s shares are currently listed on the Main Board of the Stock Exchange of Hong Kong Limited. The Company is principally engaged in engineering and construction work, property development and investment, as well as professional services including provision of security and property management services.
Readers are reminded that, pursuant to rule 31.3 of the Takeovers Code and in accordance with General Principle 1 of the Takeovers Code, the Offeror and its concert parties are prohibited from buying shares at prices higher than the offer price within six months after the end of the offer period except with the consent of the Takeovers Executive. The rule affords equal treatment to all shareholders of the offeree company.
For a copy of the Executive Statement, please refer to
http://www.sfc.hk/web/EN/files/CF/pdf/Notice%20of%20Criticism/Chun%20Wo_Eng_25%20May%2016.pdf
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=16PR48
The article is for general information purpose only and is not intended to constitute legal or other professional advice.
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