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SCMP Reporter

THE following is an edited version of the Securities and Futures Commission's (SFC) findings.

  The investigation by the SFC raised concerns about the conduct of Standard Chartered Securities and a number of directors and staff in relation to the initial subscription of, and subsequent share trading in, the new share issues of:    Yanion International Holdings.

     Chung Tai Printing Holdings.

   Pam & Frank International Holdings.

   Chun Wo Holdings.

   Truly International Holdings.

   Hanwah Holdings.

      These issues were brought to the market between July 1991 and February last year.

  The regulator concluded that Standard Chartered Securities had provided trading and credit facilities to majority shareholders or their nominees and that there had been trading malpractices.

  It said its investigation revealed that credit facilities were used to effect share support at initial subscription and/or in the after-float market.

    This was either to ensure a successful subscription or to maintain a particular price for the issue in question.

   It distorted the forces of supply and demand in the market and served to create a false and misleading impression as to public interest in, and the market price of, the securities in question.

  Accounts in the control of the majority shareholders were typically opened in the names of either:    Shell companies with nominal paid-up capital which were introduced to Standard Chartered Securities and guaranteed by the majority shareholders or directors of the issuer; or,     Employees of the issuers earning modest annual salaries, whose credit-worthiness was never verified or established; or    Close family members of the majority shareholders.

  For example, in the flotation of Yanion, which involved 75 million shares of $1 each being offered to the public, credit facilities of $108 million were provided to a shell company for initial subscription and $31.5 million for trading in the few days immediately following the flotation.

  On the first day of trading alone, Standard Chartered Securities funded the acquisition of 39.6 per cent of the public float, or 9.9 per cent of Yanion's issued capital.

  For Chung Tai, with an issue of 90 million shares of $1 each, three employees whose average annual income was under $140,000 were granted credit facilities of $17.4 million to buy in the aggregate 5.5 per cent of Chung Tai's issued capital on the first day of trading.

  Standard Chartered Securities made no inquiry into the beneficial ownership of shares subscribed for in new listings under ''omnibus'' accounts and failed to ascertain that such accounts were truly independent of the majority shareholders.

   The regulator also found there had been ''trading malpractice'' by Standard Chartered Securities staff.

     With Chun Wo, the brokerage allowed a company owned by one of its sales directors to sub-sub-underwrite seven million shares of a total of 77 million shares offered to the public and provided facilities to that company to enable it to trade in and support that issue.

   The investigation also revealed that the brokerage failed to stop trading malpractices by some of its traders on the floor of the stock exchange for a number of years.

   As a result, client orders might not have been filled or their execution might have been delayed.

    In addition, the brokerage permitted its staff to trade against its clients without prior disclosure and failed to report the execution of cross-trades to the stock exchange in a timely manner.

  The regulator concluded that Standard Chartered Securities knew or should have known that the provision of trading and credit facilities to persons acting on behalf of, or in the control of, majority shareholders would facilitate non-disclosure by majority shareholders of disclosable interests.

  This would give the majority shareholders who chose not to make the requisite disclosure a better prospect of escaping detection.

   Through this non-disclosure, the brokerage acquiesced in conduct which it knew would, or was likely to, have the effect of depriving the investing public of information material to investment decisions.

  The regulator also found that on a number of occasions Standard Chartered Securities' responses to information it sought were inaccurate.

  In particular, the company was found to have repeatedly understated the number of trades. More than 80 per cent of its Section 31 responses in the cases investigated contained inaccurate information.

   The regulators' investigation also revealed many irregularities in account documentation, suggesting inadequate internal procedures and controls.

  On one occasion, the brokerage furnished false and misleading information to the stock exchange.

    The company had been carrying out an internal investigation into trading malpractices brought to its attention by the exchange.

  It had retained an accounting firm to review working papers relating to the internal investigation.

    The exchange requested sight of the written report produced by that firm. Standard Chartered Securities sought and obtained the accounting firm's permission to release its report to the exchange.

   However, the company then claimed to the exchange that the firm had restricted the disclosure of its findings to any third party.



Concern over conduct of Standard Chartered