Hong Kong's Securities And Futures Commission Reprimands Unicorn Securities Company Limited And Fines It And Its Former Responsible Officer $3.2 Million

The Securities and Futures Commission (SFC) has reprimanded Unicorn Securities Company Limited (Unicorn Securities) and fined it and its former responsible officer, Mr Chan Hoi Shu, $3 million and $200,000, respectively, relating to failures in handling clients’ money and securities (Notes 1 & 2).

Chan, who was primarily responsible for the failures of Unicorn Securities in this connection, was also suspended for a period of 15 months from 12 March 2016 to 11 June 2017. 

The SFC found that between March 2011 and December 2013, Unicorn Securities mishandled its clients’ dividend entitlements of shares of HSBC Holdings PLC (HSBC) by going against clients’ instructions in their choices between cash or scrip dividends (i.e. HSBC shares) when submitting their instructions to Hong Kong Securities Clearing Company Limited, and giving the clients’ dividends to others.

On seven occasions, Unicorn Securities chose and received scrip dividends for all clients regardless of the clients’ instructions. After allocating the dividends to clients who elected to receive scrip dividends, Unicorn Securities deposited the remaining scrip dividends into the account of Chan or the account of a client. Chan would then sell these HSBC shares in the market and pay Unicorn Securities an amount equivalent to the clients’ cash dividend entitlements for making payments to the clients who chose cash dividends. Chan kept the profit arising from the difference between the amount he received from selling the HSBC shares and the amount he had to pay to the firm.

Separately, Unicorn Securities chose and received cash dividends for all the clients on two occasions. For clients who opted for scrip dividends, Unicorn Securities would give the clients’ cash dividends to Chan who would then buy HSBC shares in the market to meet clients’ requests for scrip dividend, and he made a profit in the process.

The SFC also found that Unicorn Securities had connived in Chan’s transfer of client money into his personal account and withdrew securities from a client’s account without the necessary written direction from the client.

The conduct of Unicorn Securities demonstrated its failure to put in place adequate and effective internal controls to ensure compliance with relevant regulatory requirements in relation to segregation and proper handling of client assets (Note 3).

Chan masterminded and involved the firm in the malpractice in handling its clients’ dividend entitlements, initiated and directed his staff to act contrary to clients’ instructions and to transfer clients’ money and securities to his personal accounts and instructed the share withdrawal from the client account without the required written direction.

In determining the penalties, the SFC took into account that:

• Unicorn Securities and Chan had abused the trust placed by their clients in the firm;
• Unicorn Securities co-operated in resolving the disciplinary proceedings while Chan admitted to his misconduct;
• Unicorn Securities engaged an external consultant to conduct a review of its systems and controls in relation to compliance with applicable regulatory requirements and has adopted an automated operation system to reduce the risk of fraud; and
• there is no evidence that clients suffered any loss as a result of the malpractice.