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Regulation

After Muddy Waters attack, timber firm hit by Hong Kong regulator

Superb Summit International Group’s shares halted indefinitely

PUBLISHED : Tuesday, 15 December, 2015, 9:20pm
UPDATED : Tuesday, 15 December, 2015, 9:20pm

In a rare move, Hong Kong’s securities watchdog has ordered the trading of Superb Summit International Group’s shares to be halted indefinitely, over a year after US short-seller Muddy Waters alleged the company had fabricated almost all of its revenue in 2013.

The Securities and Futures Commission has “directed Hong Kong Exchanges and Clearing to suspend all dealings” in the shares of the coal and timber trader, under Section 8 of the securities and futures rules, Superb said in an exchange filing.

The SFC gave no reason and a spokesman declined to comment.

Trading of Superb’s shares has been suspended since November last year on Superb’s request to the exchange pending a clarification statement. The SFC’s trading ban means trading cannot resume even if the clarification is made, unless the whole SFC board agrees to it.

Superb issued a statement nearly two months after the Muddy Waters report was issued, saying the report contained “misleading statements and fabricated contents,” adding it would issue a statement to refute the allegations “in due course.” It never did.

“Section 8 has been used only in exceptional circumstances where there is a very clear-cut and serious case for investigation,” said Martin Rogers, a partner at international law firm Davis Polk.

“This is an example of the SFC’s continuing of a trend under the leadership of Mark Steward of using innovative and strong regulatory measures when required to send warning messages against perceived, egregious market misbehaviour.”

Superb reported revenue of HK$773.3 million in 2013, but “its real revenue was likely close to zero”, Muddy Waters alleged.

READ MORE: HKEx seeks access to Hanergy’s accounts before lifting trade suspension

It claimed that almost all of the revenues Superb Summit reported in 2013 and 2012 were likely attributed to its purported subsidiary, Tianjin Libao Coal Trading, which it allegedly never owned.

Timothy Loh, principal of Timothy Loh Solicitors, said the legislation provides very broad powers to the SFC which can impose a suspension if it merely “appears” to them that one of the conditions is satisfied.

Similar suspensions by the SFC include solar firm Hanergy Thin-Film Power Group in July, industrial measurement instruments maker China High Precision Automation in 2012, and fabric maker Hontex International in 2010.

READ MORE: Hanergy case a test for Hong Kong and Chinese regulators

Hanergy, which relied on its parent for the bulk of its revenue and profits, had said the SFC cast doubt on its ongoing viability and ability to keep the market “property informed” and had requested to see the books of its parent, which Hanergy said were private material.

Hontex, accused of giving misleading information in its listing prospectus in 2009, was ordered to buy back HK$1.03 billion worth of its shares purchased by 7,700 small shareholders.

China High Precision claimed its business involved “state secrets” and cited this as the reason for holding back information from its former auditor KPMG, which later resigned.