Investors in troubled Hontex International Holdings, whose stock has been suspended for more than a year, may get their money back soon. But the flaws in the way our initial public offerings are approved have not yet been fully addressed. The Fujian fabric maker's stock has entered financial history books as the shortest lived in Hong Kong, trading for only 64 days before the Securities and Futures Commission suspended it on March 30 last year . The SFC acted after Hontex auditor KPMG alleged that senior manager Leung Sze-chit had accepted a HK$300,000 bribe from an agent of the company. The Independent Commission Against Corruption later arrested and charged Leung with bribery, but he was acquitted by the District Court last month after a judge ruled that prosecutors could not provide sufficient evidence of a crime. A resumption of trading is impossible now since the SFC last week said the company had given materially false or misleading information by overstating its financial position in its IPO prospectus in December 2009. In its prospectus, Hontex said it had experienced strong profit growth in the three years leading up to its listing. The company said it earned 242.34 million yuan (HK$275.76 million) in 2008, an increase of 42 per cent from 2007, which in turn was 66 per cent more than it made in 2006. The company must return the HK$1 billion it has raised in the initial public offerings to investors, whether they subscribed to the IPO or bought the stock after the listing. The SFC wisely got the High Court to freeze the HK$1 billion Hontex raised to make sure it had the money to return. The refund could come after the court rules next month. It would be the first time investors are compensated by a company that has committed malpractice since a 2003 law in such cases was introduced. A refund is good news for Hontex investors, but they might still ask why the company was allowed to be listed in the first place? Currently, companies planning to list need the approval of the listing division of the stock exchange, then by the listing committee, which is composed of lawyers, accountants and investors representatives. After that, the SFC vets the listing documents under the so-called dual filing system. Why didn't the regulators notice anything unusual? Regulatory friends told White Collar that the stock exchange and the SFC focus on whether a company is qualified for listing but don't cross check the financial figures or information given by the company. The due diligence, they said, should be done by the sponsors and the auditors. The next question is whether the SFC, which regulates investment banks that sponsor IPOs, has done enough to make sure the sponsors have done their duty? Hontex is the latest of several poorly performing IPOs, which shows the SFC should do more to regulation sponsors. After the Hontex case, some investment bankers have said the SFC has s held hold more inspections of listing sponsors to check whether they have conducted sufficient due diligence. But the SFC has not publicly taken any dramatic action or issued new guidelines to improve the sponsors' work. Hong Kong has been the largest IPO market in the past two years. But cases such as Hontex have tainted the local IPO market. More needs to be done to prevent another Hontex.