SFC prosecution relating to offshore / onshore activities

On June 2, the SFC published a release stating that it had disciplined a trio for unlicensed leveraged forex trading.

The SFC website stated:

The Securities and Futures Commission (SFC) has taken disciplinary actions against three individuals of Hantec Group for their involvement in an unlicensed leveraged foreign exchange trading operation following a determination of the Securities and Futures Appeals Tribunal (SFAT) (Note 1).

The SFC has:

* revoked the licence of Ms Ng Chiu Mui and prohibited her from re-entering the industry for 10 years;

* suspended the licence of Mr Law Kai Yee for two years and three months (Note 3); and

* prohibited Ms Tang Yuen Ting from re-entering the industry for nine months and fined her $1,455,496

The disciplinary actions stemmed from an SFC investigation into the unlicensed leveraged foreign exchange business of Cosmos Hantec Investment (NZ) Ltd (Cosmos Hantec), a New Zealand company not licensed by the SFC.

The SFC found that:

* Cosmos Hantec was closely associated with and related to Hantec International Ltd (Hantec), an SFC licensee;

* Law and Tang were responsible officers of Hantec and Ng is the wife of the chairman of the Hantec Group and a director of Cosmos Hantec;

* Cosmos Hantec operated a leveraged foreign exchange trading business in New Zealand offering trading facilities to Hong Kong clients out of an office in Hong Kong;

* After being detected by the SFC, Cosmos Hantec moved operations to Macau to avoid further SFC regulatory interference and to carry on its illegal and unlicensed business;

* Ng participated in the management of these illegal operations, encouraging Hantec account executives to solicit business for Cosmos Hantec from Hong Kong clients and assisted Cosmos Hantec in distributing its commission payments to account executives in Hong Kong;

* Law had encouraged the account executives of Hantec to solicit business for Cosmos Hantec from Hong Kong clients, requesting Hantec account executives to refer clients to Cosmos Hantec through third party nominees in order to cover up their illegal activities; and

* Tang procured two Hong Kong clients to open leveraged foreign exchange trading accounts with Cosmos Hantec, and received commission payments from Cosmos Hantec. She also failed to act candidly in an interview with the SFC when she was asked about her role in the matter.

The SFAT (Securities and Futures Appeals Tribunal) affirmed the SFC’s decisions to discipline Ng, Law and Tang. The SFAT also agreed that leveraged foreign exchange trading, by its very nature, is high risk and should be subject to strict regulation in Hong Kong. The acts of these three people had in effect deprived Hong Kong clients of their statutory protection under Hong Kong law. The SFAT also confirmed that the SFC is entitled to, through a fining order, deprive Tang of the commissions she received from Cosmos Hantec.

Mr Mark Steward, the SFC’s Executive Director of Enforcement, said: “We welcome the SFAT’s decision. The decision reaffirms our view that it is illegal to solicit or induce Hong Kong clients to participate in leveraged foreign exchange trading activities outside Hong Kong.” “This case demonstrates the SFC’s determination to pursue and close down illegal activities based in off-shore locations that threaten the interests of the investing public in Hong Kong. The decision also confirms the SFC’s power to strip licensees of any unjust profits earned from illegal activities,” Mr Steward added.

End of SFC release.

The case is important as it draws wider attention to a growing focus within the SFC on the actions of all international firms and how they interact with Hong Kong even where those same firms have a license in Hong Kong.  

The case facts and the result do not seem surprising but Mr Seward's words relating to offshore activities should be a warning to the many firms who market their services into Hong Kong from offshore.  There is a section of the Securities and Futures Ordinance that deals specifically with firms who try and conduct an activity from outside of Hong Kong that would otherwise require licensing in Hong Kong (see your law firm for details).  The section can catch firms who have a fully licensed presence in Hong Kong as well as those that have not sought a license (again speak with your law firm).  We expect to see more supervision and enforcement focus on this topic in future.