Hong Kong Securities And Futures Commission Revokes IDS Forex HK Limited’s Licence And Bans Its Former Co-CEOs For Life

The Securities and Futures Commission (SFC) has revoked the licence 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 (Notes 1 to 3).

The disciplinary action follows an SFC investigation triggered by a self-report by IDS Forex’s then responsible officers in June 2017.  They informed the SFC that IDS Forex’s sole shareholder, Mr Kim Sunghun, was convicted and sentenced to 12 years of imprisonment in Korea in February 2017 for illegal fundraising and fraud after his arrest there in September 2016.  The fraudulent scheme involved Kim soliciting investors between 2011 and 2016 to invest in his purported overseas business, including margin forex business.

The SFC’s investigation 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 $192 million into IDS Forex between 2015 and 2016.  In addition, Chung and Ki reported to Kim directly about IDS Forex’s business operations and executed his investment decisions (Note 4).

The arrest and conviction of Kim in Korea, which fundamentally impugns his reputation, character and reliability, called into serious question IDS Forex’s fitness and properness to be licensed (Note 5).

The SFC’s concerns over IDS Forex’s fitness and properness are aggravated by: (i) the correlation between the timing of the fraudulent scheme and Kim’s capital injections into IDS Forex; and (ii) IDS Forex’s failure to notify the SFC within the prescribed time limit after Kim’s arrest and conviction (Notes 6 & 7).

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 Chung stayed silent all the while.  The SFC considers that their failures in this regard show a lack of integrity and reliability on the parts of IDS Forex and its former senior management.

In arriving at the disciplinary sanction, the SFC has considered all the relevant factors, including the need to protect the investing public and to preserve the confidence of investors and the public in market integrity.

Notes:

1. IDS Forex was licensed under the Securities and Futures Ordinance (SFO) to carry on business in Type 3 (leveraged foreign exchange trading), Type 4 (advising on securities) and Type 9 (asset management) regulated activities.
2. Chung was licensed under the SFO and approved as a responsible officer of IDS Forex in respect of its Type 3 (leveraged foreign exchange trading) regulated activity from 30 June 2015 to 11 May 2016, and from 21 July 2016 to 29 May 2017.  He was also the former co-chief executive officer and director of IDS Forex.  Chung is currently not licensed by the SFC.
3. Ki was the co-chief executive officer and director of IDS Forex between June 2016 and June 2017.  Ki was and is not licensed by the SFC, but comes within the definition of a “regulated person” which includes a person who is or at the relevant time was a person involved in the management of the business of a licensed corporation.
4. On 12 June 2017, the SFC issued a restriction notice on IDS Forex prohibiting the firm from carrying on all activities for which it is licensed, disposing of or dealing with any assets held by it or held on behalf of its clients, and assisting, counselling or procuring another person to dispose of or deal with any such property without the SFC’s prior written consent.  For details, please see the SFC’s press release dated 12 June 2017.
5. Under section 129(1)(d) of the SFO, the SFC may take into account the reputation, character and reliability of an “officer” of a corporation in considering whether the corporation is fit and proper to be licensed.  The definition of “officer” in Schedule 1 to the SFO includes a person involved in the management of the corporation.
6. Among other things, section 4 of the Securities and Futures (Licensing and Registration) (Information) Rules (Licensing Information Rules) requires a licensed corporation to notify the SFC in writing within 7 business days after a change in the relevant information relating to its controlling person, which the licensed corporation has provided to the SFC under Part V of the SFO, takes place.  Under Part 2 of Schedule 1 to the Licensing Information Rules, “relevant information” in relation to an individual 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.  Under section 2 of the Licensing Information Rules, “controlling person” means each of the directors and substantial shareholders of the corporation.
7. General Principle 7 and paragraph 12.1 of the Code of Conduct for Persons Licensed by or Registered with the SFC require licensed corporations to comply with, and implement and maintain measures appropriate to ensure compliance with, applicable legal and regulatory requirements, including the Licensing Information Rules.