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.
Receipt of this newsletter indicates that CompliancePlus has been using your email address to market to you the compliance services that CompliancePlus is able to provide you.
CompliancePlus provides compliance consulting services to financial companies, hedge fund managers and individuals. Our dedicated team of compliance officers has years of professional experience equipped with in-depth knowledge of both functional and compliance experience in managing and minimizing regulatory, operational and reputational risks. By partnering with CompliancePlus, our clients gain access to compliance solutions that they can trust and the latest knowledge of regulatory policies and procedures.
For enquiries, please email: [email protected] or call at +852-3487 6903.
To subscribe, update your email address or unsubscribe, please email [email protected]