Police arrested three men yesterday as they began investigating the failed Hong Kong Mercantile Exchange set up by executive councillor Barry Cheung Chun-yuen, who said he was taking an immediate leave of absence.
The commercial crime bureau made the arrests after it was asked by the Securities and Futures Commission (SFC) to take over its probe into the affairs of the exchange, which closed at the weekend after running into financial problems. The SFC said its initial investigations had revealed "the suspected irregularities are serious ones".
Two 50-year-old men were arrested for possession of false documents. A 55-year old man, surnamed Dai, was arrested for "using a false instrument". They were not exchange employees.
Police were seen taking away computers from the exchange's office at Cyperport at about 9pm.
In a statement, Cheung said: "The Mercantile Exchange and I will fully co-operate with police in the probe."
He said he had asked Chief Executive Leung Chun-ying to allow him to take a leave of absence from his public duties and his request had been approved.
"During the investigation, I believe I am no longer suitable to carry out my public duties."
Cheung, 54, is chairman of the Urban Renewal Authority and in January was made deputy head of the Commission on Strategic Development, which is exploring the city's long-term development strategies. He is a key ally of Leung and headed his chief executive election campaign office.
In a statement Leung said: "Mr Cheung's leave of absence will take immediate effect."
Leung said both the police and the SFC had statutory enforcement powers and would act in accordance with the law.
"I am confident that the regulatory and the law enforcement bodies will act impartially without fear or favour. As the chief executive, I should not comment and would not interfere with their work," he said.
Lawmaker Ronny Tong Ka-wah said it was appropriate for Cheung to take a leave of absence during the investigation as his role as an executive councillor would have enabled him to access confidential documents.
"Using a false instrument is a serious offence … it also involves one's integrity," Tong said, adding that any investigation should determine if Cheung knew of any irregularities at the HKMEx.
The HKMEx returned its trading licence to the SFC last week after it became clear it could no longer meet crucial financial criteria. It closed almost two years to the day after opening for trade after a poor take up of its gold futures and repeated delays to the launch of yuan-denominated commodities contracts.
Reports suggested Cheung borrowed huge sums, including from a property tycoon, to save the exchange, raising suspicion of collusion among tycoons. Cheung rejected the claims.
Christopher Cheung Wah-fung, legislator for brokers, said: "With the closure of the HKMEx and now the police investigation and arrest, all the chaos may undermine the reputation of Hong Kong investment markets in the eyes of overseas investors."