Another sanction in HK for market manipulation

The Hong Kong SFC website reported as follows:

SFC bans Edmond Chau Chin Hung for life

The Securities and Futures Commission (SFC) has publicly reprimanded Mr Edmond Chau Chin Hung, fined him $2 million and prohibited him for life from re-entering the industry for engaging in market misconduct (Note 1).

The disciplinary action follows the Market Misconduct Tribunal’s (MMT) determination that Chau, a former responsible officer of Sun Hung Kai Investment Services Ltd (SHKIS), and three other parties had engaged in market misconduct by false trading and price rigging in the shares of QPL International Holdings Ltd (QPL). The MMT made certain orders against Chau, including recommending that the SFC take disciplinary action against him (Note 2).

During the period from 6 May to 10 June 2003, Chau engaged in scaffolding activities by placing numerous buy orders for QPL shares and subsequently cancelling, reducing these orders or allowing them to lapse in order that two SHKIS clients could sell their holdings of QPL shares more actively and quickly.

Not only was Chau in breach of SHKIS’s internal policies, he also abused his senior position as responsible officer by procuring the assistance of or conniving with his subordinate to conduct these unlawful activities.

When he attended interviews with the SFC during the investigation, he denied having conducted any scaffolding activities or engaged in any market misconduct. However, during the MMT proceedings, he admitted that he had done so.

In deciding upon the sanctions against Chau, the SFC took into account that Chau:

• played a primary role in perpetrating the market misconduct for five weeks and his misconduct was only put to an end by the intervention of the SFC with its inquiry into the trading of QPL shares;
• abused his senior position at SHKIS by procuring the assistance of his subordinate to conduct unlawful activities;
• co-operated with the SFC by consenting to the disciplinary action; and
• has a clear disciplinary record with the SFC.

End

Notes:

1. Chau was licensed under the Securities and Futures Ordinance to carry on business in Type 1 (dealing in securities), Type 2 (dealing in futures contracts) and Type 3 (leveraged foreign exchange trading) regulated activities. He was a responsible officer of Bali Securities Co Ltd, SHKIS, Sun Hung Kai Commodities Ltd, and Sun Hung Kai International Commodities Ltd. He ceased to be a licensed person and the approval for him to act as a responsible officer was revoked on 27 February 2009.
2. The MMT’s press release and report (http://www.info.gov.hk/gia/general/200903/18/P200903180162.htm) can be found on the MMT’s website (www.mmt.gov.hk).

Hong Kong SFC fines Sun Hung Kai Investment Services for compliance failure

According to the SFC website the Securities and Futures Commission (SFC) has publicly reprimanded Sun Hung Kai Investment Services Ltd (SHKIS) and fined it $4,000,000 for internal control failures that contributed to market misconduct (Note 1).  The offences relate to a failure to enforce controls relating to the separation of agency and proprietary trading.

The amount of the fine, HK$4 million (or USD514,000), is high for this type of offence and reflects the overall trend of increasing fines against corporates in Hong Kong where the SFC determines that a breach has occurred.

The SFC website reports as follows:

Following an inquiry into dealing in the shares of QPL International Holdings Ltd in 2003, the Market Misconduct Tribunal (MMT) found on 22 January 2009 that Mr Edmond Chau Chin Hung (a former responsible officer of SHKIS) and Ms Connie Cheung Sau Lin (a former account executive of SHKIS) engaged in false trading and price rigging, contrary to the Securities and Futures Ordinance, for the period from 6 May to 10 June 2003.

The MMT further found that:

• the misconduct of Chau was attributable to SHKIS of whom he was an executive director and responsible officer, and to Cheeroll Ltd (now renamed Sun Hung Kai Strategic Capital Ltd) for whom Chau was authorised to trade; and
• SHKIS was vicariously liable for the misconduct of Cheung.

On 25 February 2009, the MMT made certain orders including recommending that disciplinary action be taken by the SFC against SHKIS, Chau and Cheung (Note 2).

The SFC found that there were internal control failures at SHKIS that contributed to the market misconduct because:

• despite policies to segregate proprietary trading and client trading, SHKIS gave Chau the authority to conduct both types of trading which gave him the opportunity to misuse information gathered on the client trading side of the business to engage in unlawful activities in a proprietary account;
• at material times, SHKIS allowed Chau and Cheung to place orders in the same dealing room by open “outcry”, which was inconsistent with SHKIS’ formal policy to physically separate proprietary and client trading functions; and
• SHKIS did not detect Chau and Cheung’s misconduct for five weeks until brought to its attention by the SFC.

In deciding on this outcome, the SFC took into account that:

• Chau and Cheung acted without SHKIS’ sanction and in breach of its internal policies;
• SHKIS did not profit from Chau and Cheung’s actions;
• SHKIS co-operated with the SFC by entering into a settlement resolution; and
• SHKIS has made improvements to its framework of controls and reporting in the period since.

Mr Mark Steward, the SFC’s Executive Director of Enforcement, said: “Sun Hung Kai Investment Services Ltd had in place appropriate policies segregating client and proprietary trading which, in this case, were not properly implemented or policed. Policies designed to prevent market misconduct must be actively monitored and supervised by senior management and the SFC will hold firms to account for their failure to ensure their compliance systems are working properly.”

End

Notes:

1. SHKIS is licensed under the Securities and Futures Ordinance to carry on business in Type 1 (dealing in securities) and Type 4 (advising on securities) regulated activities.
2. The MMT’s press release and report can be found on the MMT’s website www.mmt.gov.hk

(see http://www.info.gov.hk/gia/general/200903/18/P200903180162.htm)