SFC and Police joint operation against listed company and senior executives for market misconduct
On 22 April 2021, the Securities and Futures Commission (“SFC”) and the Commercial Crime Bureau of the Hong Kong Police Force (“CCB”) conducted a joint operation against a syndicate suspected of operating ramp-and-dump market manipulation schemes and other market misconduct. The operation involved a search with the CCB of the office premises of a Hong Kong listed company and the residence of its senior executives.
Four persons, including three males and one female aged between 26 and 63, were arrested by the CCB at various locations in Hong Kong for offences of conspiracy to defraud. They included three senior executives of the listed company who are alleged to have conspired to use bogus transactions to embezzle funds of the company involving over HK$19 million.
As at the time of the press release, the investigation is still on-going.
SFC revokes IDS Forex HK Limited’s licence and permanently bans its former co-CEOs from re-entering the industry
On the same day, the SFC revoked the license of IDS Forex HK Limited (“IDS Forex”) and banned its former co-chief executive officers, Mr. Chung Wooman and Mr. Ki Bonggan, from re-entering the industry for life. This represents one of the most severe non-criminal sanctions the SFC can impose on an individual.
IDS Forex was licensed under the Securities and Futures Ordinance (Cap. 571 Laws of Hong Kong) (“SFO”) for Type 3 (leveraged foreign exchange trading), Type 4 (advising on securities) and Type 9 (asset management) regulated activities.
The investigation was triggered by a self-report by IDS Forex’s then responsible officers (“ROs”) back in June 2017. The then ROs informed the SFC that IDS Forex’s sole shareholder, Mr. Kim Sunghun, was convicted and sentenced to 12 year imprisonment in Korea for illegal fundraising and fraud and soliciting investors to invest in his purported overseas business, including margin forex business.
The SFC found that Kim, who was an officer involved in the management of IDS Forex and employed in the capacity as “chairman”, had made capital injections totalling HK$192 million into IDS Forex between 2015 and 2016.
The arrest and conviction in Korea fundamentally impugns Kim’s reputation, character and reliability, and in the opinion of the SFC, IDS Forex’s fitness and properness to be licensed was called into serious question. The SFC’s concern were aggravated by (i) the correlation between the timing of the fraudulent scheme in Korea and Kim’s capital injection into IDS Forex; and (ii) IDS Forex’s failure to notify the SFC within the prescribed time limit following Kim’s arrest and conviction.
Amongst other things, a licensed corporation is required to notify the SFC in writing within seven business days after a change in the relevant information relating to its controlling person. “Relevant information” includes information on whether the individual is or has been in Hong Kong or elsewhere: (a) subject to any disciplinary action or investigation by a regulatory body or criminal investigatory body; and (b) convicted or charged with any criminal offence.
The evidence further shows that Chung and Ki became aware of Kim’s arrest and conviction shortly after the events, but Ki did not report the matter until the SFC’s inspection in June 2017, and in Chung’s case, he had stayed silent throughout. The SFC concluded that their failure in bringing such events to the SFC’s attention represented a lack of integrity and reliability on the parts of IDS Forex and its former senior management.
For assistance with regulatory issues under the SFO or help with SFC’s ongoing enforcement matters, please contact us today.