Listing sponsor first to lose licence
The local unit of Taiwan's Mega Securities has become the first firm in Hong Kong to be stripped of its licence to advise on corporate finance deals and was fined a record HK$42 million.
Mega Capital (Asia) was found to have performed inadequate and substandard due diligence as the listing sponsor of Fujian-based garment maker Hontex International, the Securities and Futures Commission (SFC) said yesterday.
In April 2010, Hontex was suspended from trading just 64 days after its listing. The SFC accused the firm of overstating its profits in December 2009.
'Mega Capital's failure in discharging its sponsor's duties prejudiced the regulatory assessment of Hontex's suitability for listing and jeopardised the interests of the investing public,' Mark Steward (pictured), SFC's executive director of enforcement, said.
'The sanctions imposed on Mega Capital should make it clear that the SFC condemns such failure in the strongest terms.'
The harsh punishment shows that the SFC is resolved to stamp out shoddy work by listing sponsors, investment bankers say. It is also to make them think hard before accepting listing candidates with dubious disclosures - regardless of how attractive the fee income would be.
The highest previous fine was HK$30 million, which was slapped on ICEA Capital in 2005 after it was found to have failed to adequately perform its duties as the listing sponsor of orchid-grower Euro-Asia Agricultural.
Last week, the SFC said it would consult the market on reforming regulations on listing sponsors. One proposal is that bankers may be jailed if they fail to ensure the accuracy of listing prospectuses, an offence which is poised to be a criminal liability.
Hontex was listed in late 2009, and in August 2010 the firm admitted that the financial figures in its listing prospectus were misleading.
A trial in June will decide whether Hontex must return its listing proceeds of HK$1 billion to investors.
According to the SFC, key information, such as transaction figures, was missing from questionnaires that Mega Capital completed with Hontex's suppliers and customers.
Some interviews with suppliers and customers were hastily conducted over the phone on the day that Hontex filed its listing application.
Mega Capital also acceded to Hontex's request that it should not approach its suppliers, customers and franchisers directly. Also, most of the due diligence was handled by inexperienced Mega Capital staff.