October 11, 2017 / 2:40 AM / a year ago

Hong Kong regulator probing 15 firms for IPO sponsorship roles

HONG KONG (Reuters) - Hong Kong’s securities regulator is probing “substandard work” by 15 firms in their roles as sponsors for initial public offerings (IPOs) in the Asian financial hub, a senior official said on Wednesday.

The investigations are part of the Securities and Futures Commission’s (SFC) efforts to stamp out corporate fraud, enforcement head Thomas Atkinson told the Thomson Reuters Pan-Asian Regulatory Summit.

The regulator recently made its largest-ever search and is investigating 136 “active fraud cases”, of which 28 are “particularly serious,” he added.

Cases of alleged market manipulation and corporate fraud risk tarnishing Hong Kong’s reputation as a global financial center.

Atkinson admitted the city has problems, but maintained that Hong Kong remains “one of the safest markets in the world”.

The sloppy work from the 15 unnamed sponsors, as investment banks and securities firms that underwrite listings are called, caused billions of dollars in investment losses, he said.

The shortcomings included basic issues such as not verifying customers or revenue data for listing candidates, Atkinson said, adding that some of the behavior could be considered “reckless”.

“Quite a number of these serious cases involve gross overstatement of revenue and circular financing, many facilitated by related parties and false customers,” Atkinson said. “Of course, one of the risk management tools that’s essential for preventing this kind of fraud is our IPO sponsorship regime.”


In October 2013, the SFC introduced a strict new regime to hold sponsors of IPOs to higher standards and said it would hold banks liable if listing prospectuses were found to have misled investors.

In January, the regulator filed a suit against Standard Chartered Plc, UBS Group AG and four other parties over the 2009 IPO of timber company China Forestry Holdings Co Ltd.

Atkinson, who joined the regulator in May 2016, said the SFC has tapped the resources of three of its divisions to create an operational unit to be able to process more actions.

The so-called ICE team put together its Intermediaries division, which licenses and oversees individuals and securities firms, the Corporate Finance team that handles and regulates listing matters and the regulator’s Enforcement division.

The SFC recently authorized its largest ever search operation, with 136 professionals from three SFC divisions searching multiple premises as part of one investigation, Atkinson said, without disclosing the name of the company being probed.

“We’re now processing the evidence seized in the search with the continued assistance from the three divisions. This type of operation would be very difficult to do before,” Atkinson said. “Anyone who’s been exploiting investors through these types of schemes should not underestimate our resolve to stop them.”

Reporting by Elzio Barreto; Editing by Richard Borsuk

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