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Enoch Yiu

Its Hong Kong office will be scaled back, while the SFC says it is working with company officials on 'outstanding matters'

British fund manager HHG will wind down the international operations of its scandal-ridden financial advisory business, Towry Law,  amid  regulatory probes and possible lawsuits,  after  the collapse of two  hedge funds  it sold to local investors.

The company will close its Towry Law offices in Bahrain, Dubai and Japan, citing 'difficult business conditions'.

It will scale down its Hong Kong office to a customer service centre for existing clients.

The move came  as the Securities and Futures Commission (SFC) said  it was working together with company officials  'on a number of outstanding matters', including the collapse of the two funds.

The company had aggressively marketed two Cayman Islands-based hedge funds  that collapsed in 2002, costing local clients more than $400 million.

The SFC said in a statement that it wanted to 'ensure a satisfactory resolution in the interests of investors', which fund managers interpreted to mean that  it was  seeking cash compensation for clients.

'For legal reasons, the SFC cannot comment further at this stage,' the  statement said.

John Simmonds, managing director of Towry Law Group, told the South China Morning Post  that the company had been working with the SFC since the funds were exposed as insolvent but would not say whether any compensation deal was in the offing.

He also declined to comment on  allegations that the firm misled its clients by not  adequately disclosing the  inherently high risks of the hedge funds.

The funds - Global Diversified Trading and Global Opportunities Trading - were managed by Asia Financial Asset Management, which went into  liquidation  in September 2002.

According to a recent report by liquidator Deloitte Touche Tohmatsu, the net value of Global Diversified Trading was less than US$2 million, far below the US$31 million claimed by the manager before its collapse.

The two funds were not directly authorised for sale to the  public by the SFC but were marketed through Hong Kong's network of about 1,100 SFC-authorised investment advisory firms and 13,000 individual financial consultants.

Both funds had invested in illiquid Hong Kong stocks and warrants and had heavily leveraged their purchases with bank loans.

Towry Law has 4,000 clients in Hong Kong but it has not said how many had exposure to the  funds.

While admitting that the funds scandal  was a contributing factor  to its decision to withdraw from the international market, Mr Simmonds said it was not the 'driving force'.

'Basically, the international operations have not produced the results we would like to see over the past two years, due to difficult market conditions,' he said. 'In the Middle East, we have the war and threat of terrorism. In Hong Kong, we had Sars last year.'

The Bahrain, Dubai and Japan offices would close  over the coming months, subject to the receipt of local regulatory approval,  Mr Simmonds said.

He said the company would write to  its  clients in Hong Kong to explain its decision.



Towry Law quits international market