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Jun 17 Legal Update

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Largest disgorgement order for disclosing false information (SFC press release; full Market Misconduct Tribunal (“MMT”) report Part 1 ; Part 2)

What you should know:

  • Nature of market misconduct: “accounting fraud” in published audited accounts and results announcements (“disclosing false or misleading information inducing transactions”, s.277(1), Securities and Futures Ordinance)
  • Background: in Dec 16, the MMT found Greencool Technology Holding’s former Chairman/CEO, 3 former directors, and former financial controller and Company Secretary (“FCCS”) liable for grossly overstating the Group’s asset value for years 2000 to 2004 (broad range: RMB487 million-1,062 million, around 43 – 80 % of total net assets)
  • “Accounting fraud” principally related to the Group’s PRC subsidiaries
  • Disgorgement order on former Chairman /CEO- approximately $482m of profit from disposal of company shares plus interest
  • Disqualification order as a director or take part in the management of a listed company or specified corporation (former Chairman/CEO and directors: 5 years; FCCS: 3 years)
  • Cold shoulder order (former Chairman/CEO) –not to directly or indirectly deal in any securities, and specified financial instruments, for 5 years
  • Cease and desist order (4 former directors): any future market misconduct will be a criminal offence
  • “Qualified Accountant” (under GEM rules) and Company Secretary role
    – FCCS did not play any knowing role in the fraud
    – Defence that his role had been confined to “Group level matters” rejected, being inconsistent with GEM requirements
    – Found negligent, as to whether information in the accounts was false or misleading
  • HKICPA recommended to make a disciplinary action against FCCS

What you should do/watch out for:

  • The largest disgorgement order made by the MMT to date
  • FCCS also found liable for market misconduct, despite not being a director
  • “Qualified Accountant” role in a “group of companies” context
    – no defence: the fact of being asked to confine supervisory role “at group level” only



The Companies (Amendment) Bill 2017 seeks to require companies incorporated in Hong Kong to maintain beneficial ownership information.

What you should know/watch out for:

  • A company incorporated in Hong Kong will be required to:
    (i) Take reasonable steps to ascertain the individuals and legal persons (including companies) that have significant control over it; give notice to them and obtain information about their identities; and
    (ii) Maintain a register of significant controllers containing required particulars, for inspection by law enforcement officers upon demand
  • Significant control”: broadly means more than 25% of voting rights/shareholdings, or ability to exercise control through other means (e.g. the right to appoint or remove a majority of directors)
  • Listed companies are exempted
  • The proposals seek to keep Hong Kong’s regulatory regime in line with international requirements of Financial Action Task Force (“FATF”) of which it is a party
  • Reflects the increasing significance of anti-money laundering efforts, beyond the financial services sector

This Update in PDF