IF you are a client of investment adviser Pan Pacific Securities Management, all of your investment assets with this company have been frozen. The Securities and Futures Commission (SFC) has ordered the freeze because it is concerned about the financial affairs of the group after clients attempted to sue for $10.6 million worth of dishonoured cheques. It is too early to say whether or not anything criminal has occurred at Pan Pacific, the SFC says. However, it would appear from the information the SFC has that the company will be unlikely to cover current client liabilities without a significant injection of cash. Clients might never get all of their money back. The last time the SFC issued a restriction notice was in March when the watchdog effectively shut down Kingly Commodities when it was identified that $17.6 million of client money had either been lost in trading or disappeared. In that case, many of the clients could have saved themselves from losing money by checking whether the individuals they were dealing with were authorised to deal in Hongkong, as apparently 80 per cent of the company's dealers were unregistered. Yesterday's restriction notice concerned an authorised operation. An SFC spokesman said: ''The doubts we have about the financial position of Pan Pacific have resulted in the issuance of the restriction notice in order to protect the interests of investors. ''The restriction notice will remain in place until such time as the SFC's concerns have been fully addressed.'' Alarm bells began ringing at the SFC in April, when the watchdog became aware that the legal action mentioned had been launched. The SFC interviewed Sidney Yuen, the supervisory director of Pan Pacific, in May and raided the company's premises after May 12, according to an SFC source. What the SFC found looked pretty suspicious and it seemed to the inspectors that client money was at risk and it was in the public interest to look deeper into the company's affairs. These were the same grounds used as the basis to issue the restriction notice. The SFC inspectors found that accounting records at Pan Pacific had not been kept up to date since March 31, 1992. They also found that none of the Pan Pacific staff had any knowledge of the financial position and business operations of the company. ''According to the most current customer statements prepared by Pan Pacific and signed by Mr Yuen, there were approximately $13 million worth of stocks deposited by clients with Pan Pacific as at March 31, 1993,'' an SFC report said. But the inspectors concluded after looking at the company's books: ''There appears to be a significant deficit in the amount of stocks held by custodians and Yuen is unable to provide information as to the whereabouts of the stocks not accounted for.'' If you think this is bad, the picture actually gets worse as you pry into the SFC report on the Pan Pacific preliminary investigation. The SFC said: ''There is therefore reason to believe that the clients entitled to these stocks, according to Yuen's own signed statements to them, might be at risk.'' The report goes on to say: ''The same customer statements show that the amounts payable to clients amounted to $3.2 million as at March 31, 1993.'' According to the SFC, at the same date Pan Pacific had a net overdraft of $1 million with its principal banker, Liu Chong Hing Bank. ''The SFC has been unable to date to obtain confirmation from Pan Pacific as to whether or not Pan Pacific is able to meet the outstanding amounts payable,'' said the report. In addition to the $10 million of cheques dishonoured that prompted the legal action in April, the commission received a phone call on May 25 from a client complaining about further bounced cheques. This involved around $188,000. ''On June 2, further complaints were received by the SFC from clients of Pan Pacific, reporting that they were unable to recover from Pan Pacific cash and securities due them,'' said the SFC report. What worried the SFC further was that it appeared the group was bringing in new clients, laying them wide open to the kind of problems already being reported by current clients. These are the grounds on which the SFC moved to restrict the activities of Pan Pacific. The company last night was not commenting on any of the allegations put by the SFC. Pan Pacific has been told to stop doing business and to provide the SFC with evidence that it has sent a registered-mail letter to clients telling them of the restriction notice by 5 pm today. Pan Pacific also has to provide the SFC with accounts, records and documents relating to its business as an investment adviser. By 5 pm on Monday, Pan Pacific has to provide the commission with a full list of amounts due to and from clients, and a list of assets held on account of the clients, or for which Pan Pacific is accountable. The group has been told to withdraw immediately from Hang Fat Securities, Phillip Securities (HK), HG Asia Hongkong, China Point Stock Brokers and any other interested party, apart from a bank, client money and securities. This action must be taken by 5 pm today. In addition, the company is required by 5 pm on June 9 to maintain in Hongkong, deposits with licensed banks, cash or other assets acceptable to the commission, in the amount of $13 million. At the end of the current SFC investigation, there might be a happy outcome and an explanation for all the shortfalls in the financial affairs of Pan Pacific that have so deeply concerned the inspectors. However, this case goes to show that investors cannot take too much trouble finding out whether or not their investment adviser is legitimate. Being authorised to operate in Hongkong by the SFC is no guarantee of honesty. In some cases advisers might be using the authorisation sham to lull clients into a false sense of security. Clients using investment advisers who actually handle client money should be particularly careful, especially if the advisers are not members of the Hongkong stock exchange or an authorised, registered securities dealer. In general, avoid dealing with strangers from small operations you have never heard of before offering get-rich-quick schemes. Try to stick to arrangements you trust, with large reputable companies, although this is no guarantee against hitting problems either.