.jpg)
The Securities and Futures Commission (SFC) has reprimanded Hampton Securities (Asia) Limited (Hampton Securities) for window dressing its liquid capital position and other misconduct (Note 1).
It has also revoked the licence of Mr Daniel Lam Ka Kuen, a responsible officer of Hampton Securities, for masterminding the window dressing activities and being directly responsible for the other misconduct of Hampton Securities (Note 2).
An SFC investigation revealed that during the period from 1 June 2010 to 31 December 2010, there was a recurring pattern of fund transfers in and out of Hampton Securities’ house account. At the beginning or in the middle of the relevant months, funds were transferred to a company wholly-owned by Lam, leading to a drop in Hampton Securities’ liquid capital to a level below its required amount under the Securities and Futures (Financial Resources) Rules (FRR). At the end of the month, before Hampton Securities submitted its financial return to the SFC, a similar amount of funds would be returned to Hampton Securities either by Lam’s wholly-owned company or his relatives and friends.
The SFC found that the purpose of these repeated transfers was to inflate artificially the liquid assets of Hampton Securities in the calculation of its liquid capital when preparing its monthly financial returns under the FRR.
In addition, the SFC found that Hampton Securities incorrectly included the following items as part of the firm’s liquid assets:
- funds from Lam’s relatives and friends which were temporarily deposited into Hampton Securities’ bank account at month-ends of July to October 2010; and
- cheques from Lam’s wholly-owned company given to Hampton Securities at month-ends of November and December 2010 but were not deposited into its bank account.
Hampton Securities’ liquid capital position as stated in its financial returns submitted to the SFC was therefore inflated or window dressed.
The SFC also found that Hampton Securities had:
- failed to maintain the minimum level of liquid capital required under the FRR on 189 days during the relevant period and notify the SFC of its liquid capital deficiencies;
- failed to cease carrying on regulated activity when it was unable to maintain its required liquid capital;
- provided false and/or misleading information to the SFC in its financial returns submitted under the FRR;
- failed to put in place adequate and effective internal controls and procedures to ensure its compliance with the FRR; and
- held client money in its house account, in breach of the condition of its licence and the Securities and Futures (Client Money) Rules (Note 3).
The SFC’s Executive Director of Enforcement, Mr Mark Steward, said: “The FRR represents important statutory safeguards for the interests of clients and creditors of licensed corporations and are fundamental to the proper functioning of the Hong Kong market. We will not tolerate any window-dressing activities aiming to circumvent the FRR. But for the firm’s financial position, the SFC would have imposed other deterrent sanctions against it. As it is, the SFC has also revoked the licence of Lam who is primarily responsible for the window dressing activities and other failures of Hampton Securities.”
In deciding the disciplinary sanctions, the SFC took into account:
- Hampton Securities’ and Lam’s deliberate attempts to window dress the firm’s liquid capital position;
- Hampton Securities’ window-dressing activities and its failure to comply with the requirements under the FRR persisted for more than six months and were only brought to an end as a result of the SFC’s inquiry;
- Lam masterminded the window dressing activities. His conduct was dishonest and intentional; and his actions directly led to Hampton Securities’ breaches of the FRR requirements and other failures; and
- Hampton Securities and Lam have no previous disciplinary record.
Notes:
- Hampton Securities is licensed under the Securities and Futures Ordinance (SFO) to carry on business in Type 1 (dealing in securities) regulated activity. Hampton Securities notified the SFC that it had ceased carrying on its business of Type 1 regulated activity with effect from 20 May 2013.
- Lam is licensed under the SFO to carry on Type 1 (dealing in securities) regulated activity. He has ceased to act as a licensed representative and responsible officer of Hampton Securities with effect from 20 May 2013. He is currently not accredited to any licensed corporation and is not permitted to carry on any regulated activity.
- The licence of Hampton Securities is subject to the conditions that it must not hold client assets and shall only provide services to its group companies. Section 4 of the Securities and Futures (Client Money) Rules requires a licensed corporation to pay client money into a segregated account.
- A copy of the Statement of Disciplinary Action in relation to the matter is available on the SFC website.
