Oct 18 Legal Update
SFC enforcement updates
SFC’s Head of Enforcement gave a speech at a regulatory summit regarding its strategic approaches in enforcement. (Click: speech).
SFC is partnering with other enforcement agencies (ICAC, the police) in targeting “nefarious networks”. These groups of highly organized people (controlling listed companies, licensed dealers, money lenders, financial advisory services and placing agents) enrich themselves at the expense of investors.
Methods used include “share warehousing”, use of nominees to disguise actual voting control, sale of assets with extreme pricing, usually coupled with some form of “market manipulation”.
SFC also issued a circular to intermediaries, reminding them of the improper use of “nominees and share warehousing arrangements” to facilitate market and corporate misconduct. Intermediaries should be mindful of “red flags”, make proper enquiries with clients, and report promptly to SFC where needed. (Click: circular to intermediaries).
In the meanwhile, SFC introduced online forms via its website to make it easier for the public to report (i) suspected corporate fraud and market misconduct, and (ii) information about key suspects SFC is trying to locate. (Click: press release; “Reporting corporate fraud/market misconduct” webpage; “Have you seen these people” webpage)
What you should know:
- “Traditional” approach to enforcement
— Focus: Corporate fraud
— Aim: complete investigations of around 100 more entities by year-end
— Aim: legal proceedings against 60 companies and individuals by 1H 2019
— Deterrent message: since 2017, doubled the number of directors removed/ banned for fraud/ misfeasance/ breaches under the Securities and Futures Ordinance
- “Non-traditional” approach to enforcement
— “Front-loaded” approach
— “Nefarious networks”
— Partnering with ICAC, the police
Also in this issue