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The Securities and Futures Commission will use criminal liability provisions against fraudulent sponsors of IPO. Photo: Felix Wong

Hong Kong regulators to use existing rules to combat rogue sponsors

The Securities and Futures Commission will use criminal liability provisions against fraudulent sponsors of initial public offerings

Don Weinland

The Securities and Futures Commission will use criminal liability provisions against fraudulent sponsors of initial public offerings, after a slew of profit warnings from newly listed companies and one scandal in which a top executive disappeared shortly after his company listed on the exchange.

In a follow-up of a conclusion the SFC issued in late 2012, the regulator yesterday said "no amendment was required to specify sponsors as a separate category of persons who authorise the issue of a prospectus" as it held that listing sponsors were already clearly covered by existing regulations.

But the SFC also noted it would have "no hesitation" in using criminal liability provisions against anyone who authorised a listing prospectus containing false information.

Under the new rules issued in October last year, a sponsor must be appointed at least two months before an application is made.

It also requires sponsors to notify regulators of any instances of non-compliance and give reasons if and when they cease to act for a listing applicant.

Yesterday's supplementary conclusion follows a spate of poor performance at newly listed companies.

As of early this month, four new listings had issued profit warnings after going public, representing 5.9 per cent of the 68 flotations this year. In the second half of last year, 13 of the 70 new listings, or 18.6 per cent, issued profit warnings.

The chairman of Fujian Nuoqi, Ding Hui, transferred HK$291 million in cash out of the company's accounts shortly after its share sale in January. He has since disappeared.

Shares in Nuoqi have been suspended from trading since July 23 and the company has said it is unable to make cash dividend payments to shareholders as scheduled.

The company had raised HK$274 million in net proceeds from its initial public offering.

This article appeared in the South China Morning Post print edition as: Existing rules 'enough to combat rogue sponsors'
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