SFC and HKMA welcome Lehman progress

On 14 June 2011 the SFC and HKMA reported that they are pleased by PwC’s announcements concerning the distribution of the underlying collateral for the Minibond series 10 to 12, 15 to 23 and 25 to 36 (the Relevant Series) to the nominal holders of the Relevant Series via the Clearing Systems in accordance with the terms of the settlement agreement with Lehman Brothers.

The SFC and the HKMA are also pleased to note that the recovery percentages on a weighted basis are on average 1.6% higher than the indicative recovery percentages stated in the announcement by the Receivers dated 28 March 2011. The recovery of collateral at a higher level, together with the additional ex-gratia payment by the 16 Lehman Brothers' Minibond distributing banks, will increase the level of recovery of eligible customers to between 85% and 96.5% of their initial investment.

Further details and regulator comments are available here.

HKMA update on Lehman Minibond Cases

On Friday 19 February the following was posted on the HKMA website:

The Hong Kong Monetary Authority (HKMA) announced that up to 18 February 2010, there were 12,981 complaint cases concerning Lehman-Brothers-related investment products which have been resolved by a settlement agreement reached under section 201 of the Securities and Futures Ordinance (Notes 1 & 2) and 893 cases through the enhanced complaint-handling procedures required by the settlement agreement. Together with the 2,780 cases closed because insufficient prima facie evidence of misconduct was found after assessment or no sufficient grounds and evidence were found after investigation, the handling of 16,654 complaints received have now been completed.

Currently, 1,056 Lehman-Brothers-related complaint cases (including minibond cases) are under disciplinary consideration after detailed investigation by the HKMA. Proposed disciplinary notices are being prepared in respect of 757 such cases and proposed disciplinary notices or decision notices have been issued in respect of another 299 cases (Note 3). Adding these 1,056 cases to those the handling of which has already been completed, investigation work has finished for 82% of complaint cases received.

(A table summarising the progress of the disciplinary and complaint-resolution work in respect of Lehman-Brothers-related complaints is attached.)

Table

 

Notes:

1. On 22 July 2009, the SFC, the HKMA and 16 distributing banks reached an agreement under section 201 of the SFO in relation to the repurchase of Lehman Brothers Minibonds from eligible customers and the HKMA has informed the banks that, since the agreement contains detailed arrangements for settlement of claims and the implementation of robust systems for selling unlisted structured investment products and dealing with related customer complaints in future, it is not the intention of the HKMA to take any enforcement action in relation to Minibond cases that involve eligible customers who accept the repurchase offer.
    

2. Since 7 August 2009, 16 minibond distributing banks have begun issuing repurchase offer letters to eligible customers (about 25,000 customers) under the Lehman-Brothers Minibonds Repurchase Scheme (the Scheme) announced on 22 July 2009. Up to 10 February 2010, 24,741 customers have responded to the repurchase offers, of whom 24,477 customers or 98.9% have accepted the offers. As of 31 January 2010, for customers who had accepted the offer, 99.96% of them already received payment from the banks concerned, while the remaining payments will be settled soon (in any case no later than 30 days after having received the duly completed acceptance forms from these customers). Separately, about 4,800 customers who had reached settlements with the banks prior to the introduction of the Scheme are eligible for the voluntary offer made by the banks, with a view to bringing them in line with the eligible customers who accept the repurchase offer under the Scheme. For customers whose previous settlement amount was less than 60% (for customers aged below 65) or 70% (for customers aged 65 or above) of the principal invested, 99.5% had already received top-up payments from the banks concerned on 31 January 2010.
    

3. These are cases in respect of which (a) proposed disciplinary notices have been issued and representations were pending, (b) representations have been received and are being reviewed, or (c) disciplinary decision notices have been issued and the persons concerned have been given 21 days to consider whether to appeal to the Securities and Futures Appeals Tribunal.

HKMA update on Lehmans minibond cases

The following was on the HKMA website on 5 February:

Progress of the HKMA's investigations in Lehman-Brothers-related cases

The Hong Kong Monetary Authority (HKMA) announced today (Friday) that up to 4 February 2010, there were 12,903 complaint cases concerning Lehman-Brothers-related investment products which have been resolved by a settlement agreement reached under section 201 of the Securities and Futures Ordinance (Notes 1 & 2) and 787 cases through the enhanced complaint-handling procedures required by the settlement agreement. Together with the 2,750 cases closed because insufficient prima facie evidence of misconduct was found after assessment or no sufficient grounds and evidence were found after investigation, the handling of 16,440 complaints received have now been completed.

Currently, 1,039 Lehman-Brothers-related complaint cases (including minibond cases) are under disciplinary consideration after detailed investigation by the HKMA. Proposed disciplinary notices are being prepared in respect of 740 such cases and proposed disciplinary notices or decision notices have been issued in respect of another 299 cases (Note 3). Adding these 1,039 cases to those the handling of which has already been completed, investigation work has finished for 81% of complaint cases received.

(A table summarising the progress of the disciplinary and complaint-resolution work in respect of Lehman-Brothers-related complaints is attached.)

Table

For further enquiries, please contact:
Alice Lo, Communications Chief, at 2878 1480 or
Yokee Wong, Manager (Communications), at 2878 1213

Hong Kong Monetary Authority
5 February 2010

Notes:

1. On 22 July 2009, the SFC, the HKMA and 16 distributing banks reached an agreement under section 201 of the SFO in relation to the repurchase of Lehman Brothers Minibonds from eligible customers and the HKMA has informed the banks that, since the agreement contains detailed arrangements for settlement of claims and the implementation of robust systems for selling unlisted structured investment products and dealing with related customer complaints in future, it is not the intention of the HKMA to take any enforcement action in relation to Minibond cases that involve eligible customers who accept the repurchase offer.

2. Since 7 August 2009, 16 minibond distributing banks have begun issuing repurchase offer letters to eligible customers (about 25,000 customers) under the Lehman-Brothers Minibonds Repurchase Scheme (the Scheme) announced on 22 July 2009. Up to 3 February 2010, 24,737 customers have responded to the repurchase offers, of whom 24,471 customers or 98.9% have accepted the offers. As of 31 January 2010, for customers who had accepted the offer, 99.96% of them already received payment from the banks concerned, while the remaining payments will be settled soon (in any case no later than 30 days after having received the duly completed acceptance forms from these customers). Separately, about 4,800 customers who had reached settlements with the banks prior to the introduction of the Scheme are eligible for the voluntary offer made by the banks, with a view to bringing them in line with the eligible customers who accept the repurchase offer under the Scheme. For customers whose previous settlement amount was less than 60% (for customers aged below 65) or 70% (for customers aged 65 or above) of the principal invested, 99.5% had already received top-up payments from the banks concerned on 31 January 2010.

3. These are cases in respect of which (a) proposed disciplinary notices have been issued and representations were pending, (b) representations have been received and are being reviewed, or (c) disciplinary decision notices have been issued and the persons concerned have been given 21 days to consider whether to appeal to the Securities and Futures Appeals Tribunal.



MAS issues statement on Minibond distributions

On 3 February 2010, MAS issued a statement on Minibond Distributions. In their statement MAS welcomed the announcement by the three partners of PricewaterhouseCoopers LLP appointed as receivers for the Minibond notes, and HSBC Institutional Trust Services (Singapore) Limited, the trustee for the notes, that distribution of the recovery values of the Minibond notes to investors will be made on 12 February 2010.

All investors holding the Minibond notes will receive the recovery value for the notes they hold (which is based on the series of notes that were purchased). The total amount received by each investor will depend on the recovery value, as well as the outcome of the dispute resolution process.  This is in line with the approach for financial institutions that distributed the notes to review complaints on a case-by-case basis, and to make settlement offers according to the facts and circumstances of each investor and transaction.

MAS reported that taking into account the recovery values of the notes and the settlement offers that have been accepted, 80% of retail investors will receive 50% or more of their investment back. 

For further information please see MAS Minibond distribution release

SFC and Karl Thomson Agreement on Lehman Minibonds

On 13 January 2010, the SFC announced that it had reached an agreement with Karl Thomson Investment Consultants Ltd (Karl Thomson) to resolve issues arising from the sale of Lehman Brothers Minibonds (Minibonds) by Karl Thomson . Karl Thomson has informed the SFC that it had made repurchase offers voluntarily to the 11 affected clients, and that all these clients have accepted the offers and entered into repurchase agreements. Under the agreement, Karl Thomson has agreed to undertake certain activities including, but not limited to: immediately implementing a special enhanced complaints handling procedure; engaging an independent reviewer, to be approved by the SFC, to review its systems and processes relating to the sale of structured products and to report to the SFC, and committing to the implementation of all recommendations by the independent reviewer; and setting aside $38,453.93, being commission income earned by it from the sale of Minibonds, to be paid to the Hong Kong Securities Institute to meet the costs of a series of seminars and/or training programmes on the subject of compliance with the SFC’s Code of Conduct  regarding the sale of investment products to retail investors. For further information please use the following link Karl Thomson Agreement

Lehman Brothers Minibond distributors investigation completed by SFC

On 17 December 2009 the SFC announced that its investigations into the distributors of Lehman Brothers minibonds had been completed with an agreement being reached with Grand Cathay. Part of the agreement included Grand Cathay making repurchase offers to all its 37 clients totaling US$3.93 million and those offers being accepted. In addition to the offer, Grand Cathay also has to implement certain measures such as; an enhanced complaints handling system and allocation of commissions from the sales of the Lehman Brothers products to the SFC. Further details of the agreement can be found using the link below. The SFC did note that their investigation into non-minibond structured Lehman Brothers products was ongoing.  

Grand Cathay Agreement

HKMA reports further on Lehman Mini Bonds

On Friday 23 October the Hong Kong Monetary Authority published further data about its ongoing work in relation to Hong Kong's biggest financial scandal from the credit crunch, the Lehman Mini Bond saga.  Banks in Hong Kong are regulated by the HKMA and upon receipt of a complaint from the public the HKMA will first review the facts before deciding whether to send the complaint on to the Hong Kong SFC for further investigation and to decide whether the case requires enforcement action.

The HKMA reported as follows:

The Hong Kong Monetary Authority (HKMA) announced today (Friday) that there are currently 610 Lehman-Brothers-related non-minibond cases under disciplinary consideration.  These are cases which have gone through detailed investigation by the HKMA.

Up till now, the HKMA has referred a total of 334 Lehman-Brothers-related non-minibond cases to the Securities and Futures Commission (SFC) for further action.  These cases have been reviewed by the HKMA, which has determined that there are sufficient grounds for referring them to the SFC to facilitate its investigations into banks.

The HKMA has, up to 22 October 2009, received 21,729 complaints concerning Lehman-Brothers-related products, of which 7,767 relate to non-minibond products.  Of the Lehman-Brothers-related non-minibond complaints, 7,720 cases have gone through the preliminary assessment process and, as a result, the HKMA is currently investigating 3,177 cases and seeking further information on 1,625 cases.  A total of 2,308 Lehman-Brothers-related non-minibond complaints have been closed as there was not sufficient prima facie evidence found after the preliminary assessment process or no sufficient grounds and evidence found after detailed investigations.  Of the minibond complaints, 12,898 cases are eligible for the Lehman-Brothers Minibonds Repurchase Scheme ("the Scheme") or the voluntary offer made by the distributing banks to customers with whom they had reached settlements before the Scheme was introduced.  One thousand and three minibond complaints involving customers who are not eligible for, or have indicated that they do not accept, the repurchase offer under the Scheme or whose cases require clarification from the banks will continue to be handled by the HKMA if the complaints cannot be resolved by the enhanced complaint handling system introduced by the distributing banks as agreed by the regulators.  (A table summarising the Lehman-Brothers-related complaints received so far is attached.)

HKMA Reports on Lehman Mini Bonds

The most high profile issue in the financial industry in Hong Kong over the last year has been the fallout from the collapse of Lehman Brothers in relation to either securities issued by that firm or securities where Lehman was a referenced entity and thus the value of the security was related to the value of Lehman.

Following a massive public outcry due to the sudden loss in value of these securities, the Hong Kong SFC and the Monetary Authority commenced investigations into sales practices and other issues arising.  A short while back the banks involved entered into a settlement with the regulators.  However there are ongoing investigations.

On25 September the HKMA issued a report on its website on the status of the Lehman Mini Bond investigations:

Progress of the HKMA's investigations in Lehman-Brothers-related cases

The Hong Kong Monetary Authority (HKMA) announced today (Friday) that there are currently 522 Lehman-Brothers-related non-minibond cases under disciplinary consideration.  These are cases which have gone through detailed investigation by the HKMA.

Since 17 October 2008 the HKMA has referred a total of 334 Lehman-Brothers-related non-minibond cases to the Securities and Futures Commission (SFC) for further action.  These cases have been reviewed by the HKMA, which has determined that there are sufficient grounds for referring them to the SFC to facilitate its investigations into banks.

The HKMA has, up to 24 September 2009, received 21,708 complaints concerning Lehman-Brothers-related products, of which 7,779 relate to non-minibond products.  In respect of the Lehman-Brothers-related non-minibond complaints, 7,680 cases have gone through the preliminary assessment process and, as a result, the HKMA is currently investigating 2,806 cases and seeking further information on 2,645 cases.  A total of 1,707 Lehman-Brothers-related non-minibond complaints have been closed as there was not sufficient prima facie evidence found after the preliminary assessment process or no sufficient grounds and evidence found after detailed investigations.  Of the minibond complaints, 13,007 cases are eligible for the Lehman-Brothers Minibonds Repurchase Scheme ("the Scheme") or the voluntary offer made by the distributing banks to customers with whom they had reached settlements before the Scheme was introduced.  Eight hundred and seventy-one minibond complaints involving customers who are not eligible for, or have indicated that they do not accept, the repurchase offer under the Scheme or whose cases require clarification from the banks will continue to be handled by the HKMA if the complaints cannot be resolved by the enhanced complaint handling system introduced by the distributing banks as agreed by the regulators.  (A table summarising the Lehman-Brothers-related complaints received so far is attached.)

Since 7 August 2009, 16 minibond distributing banks have begun the issue of repurchase offer letters to eligible customers (about 25,000 customers) under the Scheme.  Up to 23 September 2009, 22,152 customers have responded to the repurchase offers, of whom 21,937 customers or 99.0% have accepted the offers. 

"The repurchase offer is open for 60 days from the date of the offer letter.  Depending on the date of individual offer letters, the offer period will start to expire from 6 October 2009.  Nevertheless, eligible customers should consider carefully the terms of the offer and his or her personal circumstances before deciding whether to accept the offer from the distributing banks," added the HKMA spokesperson.

A set of questions and answers has been prepared to provide further details on the Scheme.  It can be found at http://www.info.gov.hk/hkma/eng/new/lehman/lehman.htm.
 

Table

Our own Eliot

Insider trading and market manipulation in Hong Kong has been a continuing problem for as long as the stock market there has been in existence. Up until recently there had never been a successful criminal prosecution for insider dealing. All of that is now changing and Hong Kong appears to have its own Eliot Ness of the securities industry. Mark Steward joined the SFC from the Australian Securities and Investment Commission a few years back and has now racked up 9 criminal prosecutions.

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Progress of the HKMA's investigations in Lehman-Brothers-related cases

The biggest issue in financial services in Hong Kong over the last 12 months has been the collapse of Lehman Brothers and the knock on effect it had in relation to various structured notes purchased by members of the public in Hong Kong. After street demonstrations, formal inquiries and various investigations a process of settling the claims of disgruntled investors and referring specific cases of alleged misselling to regulators is well underway. The following press release from the HKMA (who regulate banks in Hong Kong) was released on 21 August:

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Hong Kong updates

10 July 2009 SFC to further study proposal to allow remote participants to access futures market On 27th February 2009, the SFC issued a consultation paper inviting comments on whether the definition in futures contracts should be changed to allow overseas participants to participate in that market without an SFC license provided certain preconditions were met. The SFC received 16 written submissions with mixed response and is hence going to further the study before a decision can be made.

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