The Securities and Futures Commission (SFC) has revoked the licence of Mr Ernest Chan Tsz Kin, a former responsible officer (RO) of Keptain Securities and Asset Management Limited (Keptain), and the approval for him to act as an RO, for window dressing Keptain’s financial resources between June 2016 and March 2018 (Relevant Period). The SFC also banned him from re-entering the industry for 10 years from 24 August 2026 to 23 August 2036 (Notes 1 and 2).
The disciplinary action follows an SFC investigation which found that during the Relevant Period, Chan caused Keptain to window dress its liquid capital and provide false and/or misleading information regarding its month-end liquid capital position in 15 financial returns submitted to the SFC, creating the false appearance that Keptain complied with the liquid capital requirement under the Securities and Futures (Financial Resources) Rules (FRR) (Note 3).
In each of the 15 financial returns signed and submitted by Chan as Keptain’s RO, Keptain represented that its liquid capital exceeded the required level. However, the SFC found that the liquid capital computation in the financial returns included the amounts of 15 cheques issued by Chan or companies connected to him. While the cheques were deposited into Keptain’s bank account at or around month-end, they were subsequently dishonoured a few days later, before the financial returns were submitted to the SFC. Had the amounts represented by the dishonoured cheques been excluded from the liquid capital calculations, Keptain would have failed to meet the required liquid capital level at the end of each relevant reporting month.
Further, despite having liquid capital deficits ranging from $731,000 to $3,473,000 over 20 months during the Relevant Period, Keptain did not notify the SFC as required under the SFO and the FRR (Note 4).
The SFC considers that Keptain’s conduct occurred with Chan’s consent or connivance and should be regarded as misconduct on his part. Chan’s conduct also calls into serious question his fitness and properness to remain licensed (Note 5).
In deciding the disciplinary sanction against Chan, the SFC has taken into account that:
- the FRR represent significant statutory safeguards for the interests of the investors in the market;
- Keptain’s window dressing of its liquid capital position was serious and amounted to flouting the FRR regime, preventing the SFC from assessing its financial soundness;
- Chan was directly responsible for Keptain’s window dressing activities and its failures to maintain its required liquid capital for a prolonged period;
- Chan’s conduct was intentional and called into question his honesty and integrity;
- providing false or misleading information in financial returns is a serious misconduct;
- Keptain did not have any active clients or conduct any regulated activities during the Relevant Period; and
- Chan’s cooperation with the SFC in resolving the SFC’s concerns.
Notes:
- Chan was accredited to Keptain and approved to act as its RO for Type 1 (dealing in securities) and Type 9 (asset management) regulated activities under the Securities and Futures Ordinance (SFO) between 24 January 2013 and 31 May 2019. Chan has been accredited to CIS Securities Asset Management Limited and approved to act as its RO for Type 1, Type 4 (advising on securities) and Type 9 regulated activities since 11 July 2023.
- Keptain (formerly known as Frontier Global Asset Management Limited) has been licensed under the SFO to carry on Type 4 and Type 9 regulated activities since 3 August 2020 and 24 January 2013 respectively. It was also licensed to carry on Type 1 regulated activity from 24 January 2013 to 31 August 2022. Keptain did not conduct any regulated activities during the Relevant Period. It has applied to the SFC for a voluntary revocation of its licence.
- Rules 4 and 6 of the FRR require a licensed corporation to maintain at all times a minimum amount of required liquid capital. Keptain was required to maintain a minimum liquid capital of $3 million during the Relevant Period.
- Section 146(1) of the SFO requires a licensed corporation to notify the SFC as soon as reasonably practicable when it becomes aware of its inability to maintain financial resources specified by the FRR. Rule 55(1) of the FRR also requires a licensed corporation to notify the SFC as soon as reasonably practicable and in any event within one business day of becoming aware of its liquid capital falling below 120% of the required level.
- Section 193(2)(a) of the SFO provides that where an intermediary is, or was at any time, guilty of misconduct as a result of the commission of any conduct occurring with the consent or connivance of, or attributable to any neglect on the part of, another person as a responsible officer of, or a person involved in the management of the business of, the licensed corporation, the conduct shall also be regarded as misconduct on the part of that other person.
A copy of the Statement of Disciplinary Action is available on the SFC website
