SFC feels the sting of Wong's influence despite being in jail

PUBLISHED : Saturday, 02 October, 2010, 12:00am
UPDATED : Saturday, 02 October, 2010, 12:00am

Don't call Wong Kwong-yu a loser. While he failed to oust a rebellious management from Gome Electrical Appliances Holding the bruise is minor compared to the lumps and bumps on the faces of our securities regulators.

From a Beijing jail notorious for depriving inmates of their rights, Wong has orchestrated one of the most colourful battles for boardroom control in Hong Kong's corporate history.

That includes a noisy media war fuelled by timely press statements from Wong, an internet campaign that called the management 'traitors', the support of HK$2.64 billion worth of Gome shares on top of his HK$13 billion worth of shares and a narrow defeat in a vote - by only 4 per cent.

Our watchdog, meanwhile, cannot even hand Wong and his wife a court letter to start litigation against the couple, who have allegedly cheated Gome of HK$1.6 billion. It has been more than a year since the regulator made the accusation.

Instead, an officer from the enforcement division of the Securities and Futures Commission (SFC) had to arrive at the Causeway Bay hotel where Gome shareholders were meeting, battle through journalists surrounding Wong's sister, hand her his business card and ask for a meeting.

The sister, Huang Yanhong, was there as a board candidate nominated by her brother to regain control. Before she said anything, a lawyer representing the Wong family was by her side telling the official to contact the law firm.

Within minutes, Huang was whisked away untouched, leaving behind the officer and dozens of staring journalists.

Ouch. The embarrassing episode signals one thing loud and clear. Our regulator is powerless in bringing any influential mainland entrepreneurs over the border to face justice.

Under a 1993 accord, the China Securities Regulatory Commission (CSRC) will facilitate investigations by the SFC, which has no power across the Lo Wu bridge, and vice versa.

It works well with 'technical' issues. Last year, the CSRC made hundreds of mainland investors available for interviews with SFC investigators in Shenzhen on illegal practices involving a Hong Kong broker in Guangdong.

But as with many things in China, once politics is involved you get stonewalled. In the case of Wong, it cannot get more complicated.

The CSRC cannot just knock on Wong's cell door and hand him the letter. Since the letter is issued by the Hong Kong court; it has to go through the mainland judiciary.

The two judiciaries have an agreement to enforce each other's decisions, but only on civil and commercial matters. Whether that covers the Securities Ordinance, under which the commission is acting, is a matter of debate.

Sure, these legal wrangles can be solved in a blink with an order from the very top. After all, there have been cases in which a wanted mainland entrepreneur suddenly turned up at the border to face the handcuffs of the Hong Kong police.

There is, however, little chance that this will happen to Wong.

It is important to remember that in China no successful private entrepreneur is a lone wolf. They all have their own friends in the corridors of power. Their fate is largely a result of compromises.

Wong's friends may therefore have good reasons for keeping the billionaire away from our regulators.

First, the Gome empire is too big to fail or fall into the hands of foreign-owned business. Keeping Wong 'alive and kicking' is therefore necessary.

It is the country's second-largest electronic appliances retailer, with more than 800 stores in 205 cities. It has 41,633 employees. It owes suppliers 16.2 billion yuan (HK$18.75 billion). These numbers have not included the business at the parent level, which operates 250 stores.

Second, Wong has already paid his debt. The mainland court sentenced him to 14 years' jail and a 600 million yuan fine for insider trading, money laundering and bribing officials.

'Even if the SFC manages to prove Wong did cheat the company, is the Hong Kong court going to lock him up for more than 14 years? No. Then why should Beijing bother (to hand him to the Hong Kong court)? ' said a mainland lawyer.

In fact, none of the mainland businessmen that have been jailed by domestic courts have ever faced the Hong Kong courts.

It is therefore no surprise that Wong was granted the rare freedom to strike back at the management, while his wife - freed on appeal - talks freely to the media about further moves.

The SFC declines to comment on the situation. 'The SFC is continuing to liaise with mainland authorities with a view to assisting the court to' serve the court documents, said a spokesman.

So what is going to happen next?

Wong is a known street fighter. He is willing to go on the attack again for control of an empire he founded.

Every swat he makes will, however, deal another blow not just to the Gome management but, more importantly, to the integrity of Hong Kong's regulatory regime.

This comes as more and more mainland entrepreneurs like Wong are queuing up for a listing in Hong Kong and the quality stamp that goes with it.