Hontex International Holdings has failed in a bid to stop the Securities and Futures Commission (SFC) from seeking a court order to refund back to investors the HK$1 billion it raised in its 2009 initial public offering.
The SFC sought the court order in a trial this week as the regulator alleged Hontex's prospectus misled investors by overstating its turnover and profit before tax in the three years up to its listing. The regulator in March 2010 ordered Hontex to suspend trading, and had obtained a court interim order to freeze the HK$997 million raised in the IPO.
Hontex's lawyer, Charles Manzoni, said the SFC's allegation had not been proven beyond a reasonable doubt. Manzoni said the hearing should be stopped, as he claimed the regulator was trying to impose criminal penalties.
But High Court Judge Jonathan Harris rejected the claims yesterday and ruled that criminal penalties on the company were not being sought. This means the hearing will continue, but Hontex can appeal against the ruling.
An SFC statement of claim against Hontex in October alleged that its prospectus had overstated its turnover by 380 million yuan (HK$464 million) in 2006, 708 million yuan in 2007 and 974 million yuan in 2008.
Separately, the SFC yesterday said it had revoked the license of Hong Hui-lung, former managing director of Mega Capital, which sponsored the Hontex IPO in 2009, alleging Hong had failed his duty and tried to shift responsibility to his colleagues. The SFC revoked Mega Capital's licence in April and fined it a record HK$42 million.
Hong denied that he was in charge of Hontex's listing application, despite his staff confirming his role.
Hong tried to shift the responsibility to another officer, whom the SFC identified only as Mr X.
The SFC said Hong did not carry out his due-diligence duty properly and had admitted he did not read most of the e-mails sent to him from his staff relating to Hontex's listing application. Hong also did not review the due-diligence questionnaires given out to Hontex's major customers and suppliers.
Hong and Mr X jointly signed the sponsor's undertaking and declaration to the Hong Kong stock exchange that Mega Capital had done reasonable due diligence on Hontex, to make sure information provided to the exchange was true and that no important information was omitted. However, the SFC said Hong simply relied on Mr X and the transaction team to ensure the quality of the due-diligence work, without performing any quality-assurance role himself.
The SFC found no evidence that Hong was involved in any fraud or had taken unfair advantage.
'As a responsible officer ... for Mega Capital, Hong failed to ensure Mega Capital's transaction team undertook proper and effective due diligence into the claims made by Hontex in its IPO prospectus,' said Mark Steward, the executive director of enforcement of the SFC.
'Revocation is a very serious sanction, and reflects the terrible consequences for the investing public who bought shares in Hontex, and who remain substantially out of pocket because of Hontex's position.'