Hong Kong's Securities And Futures Commission Reprimands And Fines Value Partners $4 Million

The Securities and Futures Commission (SFC) has reprimanded Value Partners Limited (VPL) and Value Partners Hong Kong Limited (VPHKL) (collectively, Value Partners), and fined them $2 million respectively for failures to comply with the regulatory requirements in managing two SFC-authorized funds (Notes 1 & 2).

The SFC found that the two funds, namely, Value Partners China Greenchip Fund Limited (Greenchip Fund) and Value Partners Greater China High Yield Income Fund (High Yield Fund), had issued shares in excess of their authorized share capital as provided in their Memorandum and Articles of Association (Notes 3 & 4). 

In doing so, VPL and VPHKL have failed to manage the funds in accordance with their constitutive documents as required by the Code on Unit Trusts and Mutual Funds (Note 5).  

The SFC also found that Value Partners did not report the incidents to the SFC until six months after they were uncovered.

The SFC considers the incidents serious as they called into question the validity of the shares issued to investors of the funds. In deciding the penalty, the SFC took into account that Value Partners:

• co-operated with the SFC in resolving the SFC’s concerns;
• took actions to rectify the failures and there were no apparent investor losses (Note 6); and
• engaged an independent reviewer to conduct a review of Value Partners’ internal control systems with respect to all SFC-authorized funds managed by Value Partners.

Notes:

1. VPL is licensed under the Securities and Futures Ordinance (SFO) to carry on Type 1 (dealing in securities), Type 4 (advising on securities), Type 5 (advising on futures contracts) and Type 9 (asset management) regulated activities.
2. VPHKL is licensed under the SFO to carry on Type 1 (dealing in securities), Type 4 (advising on securities), Type 5 (advising on futures contracts) and Type 9 (asset management) regulated activities.
3. VPL and VPHKL are the respective investment managers of the Greenchip Fund and the High Yield Fund.  The funds are open-ended mutual fund corporations established under the laws of Cayman Islands. 
4. With respect to the Greenchip Fund, the number of issued shares exceeded the number of authorized shares during the period from 1 June 2015 to 29 February 2016.  In respect of the High Yield Fund, the number of issued shares exceeded the number of authorized shares during the period from 15 November 2012 to 14 August 2016. 
5. Paragraph 5.10(a) of the Code on Unit Trusts and Mutual Funds provides that a management company must manage the scheme in accordance with the scheme’s constitutive documents in the best interest of the holders.   
6. Value Partners had, among other things, increased the authorised share capital of the two funds in their Memorandum and Articles of Association through ordinary resolutions of their shareholders.