The Securities and Futures Appeals Tribunal (SFAT) has today affirmed the decision of the Securities and Futures Commission (SFC) to reprimand Sun Hung Kai International Limited (Sun Hung Kai International), fine it $12 million, and suspend its licence to provide advisory service on corporate finance for one year after finding serious deficiencies in the sponsor work relating to the listing of Sino-Life Group Limited (Sino-Life) on the Growth Enterprise Market Board (GEM Board) of The Stock Exchange of Hong Kong Limited (SEHK) (Notes 1 & 2).
An SFC investigation revealed that Sun Hung Kai International had failed to conduct proper due diligence between October 2007 and September 2009 on Sino-Life’s business in relation to a number of material issues, and had placed undue reliance on the work delegated to external experts.
In summary, the SFC found that Sun Hung Kai International had failed to:
- assess the accuracy and the completeness of the information submitted by Sino-Life to demonstrate that it satisfied the financial requirements to list on the GEM Board;
- ascertain the existence of various encumbrances on the title of a major business deal of Sino-Life in Taiwan;
- properly assess the business of Sino-Life’s wholly-owned subsidiary in Taiwan;
- ensure true, accurate and complete disclosure was made to the SEHK and in Sino-Life’s prospectus and breached the sponsor undertaking to the SEHK by filing untrue statements in the sponsor declaration; and
- keep proper books and records in relation to the sponsor work conducted.
In deciding the penalty, the SFC took into account:
- material failings by sponsors have serious consequences for the investing public and carry a very high risk that investors will lose some or all of their money;
- Sun Hung Kai International was selective in its disclosure to the SEHK during the listing process; and
- Sun Hung Kai International has an otherwise clean disciplinary record.
The SFC’s Chief Executive Officer, Mr Ashley Alder, said, “Material failings by sponsors directly damage investors and affect market confidence. This outcome sends a clear message to all sponsors.” (Note 3)
Notes:
- Sun Hung Kai International was licensed under the Securities and Futures Ordinance to carry on business in Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities at the relevant time. The SFC suspended Sun Hung Kai International’s licence to carry on business in Type 6 regulated activity as part of the disciplinary action.
- Please refer to the SFAT’s Reasons for Determination, which is available on its website at www.sfat.gov.hk.
- The SFC has from time to time published circulars reiterating the standards required of sponsors. On 29 March 2011, the SFC published the Report on Sponsor Theme Inspection Findings addressing concerns over sponsor work deficiencies. On 12 December 2012, following a two-month consultation, the SFC published its proposals which contain key reforms aimed at raising the standard of due diligence of sponsors, and enabling and incentivising them to take a responsible, proactive and constructive role when leading initial public offerings and maintain investor confidence in Hong Kong’s initial public offering market. The new requirements apply to listing applications submitted on or after 1 October 2013.