White Collar | Hong Kong regulatory probe on UBS underlines urgent need for listing reform
Swiss bank could face financial penalties, and may even be stripped of its ability to provide corporate finance advisory services in Hong Kong
The Securities and Futures Commission (SFC) is investigating the role played by Swiss bank UBS as a sponsor in a number of unnamed stock market listings in the city, it said on Friday – another case that illustrates just how urgent reforms are still needed in Hong Kong to tighten up the accuracy of the financial information being offered during flotations.
The disclosure by UBS, released with its third-quarter financial results, said the SFC first informed the lender about its investigation this month and that it may face a range of penalties from paying a fine to risking being banned from advising clients in Hong Kong.
Investment banks such as UBS who guide companies to market are legally liable for the information contained in a listing prospectus, increasing the potential of litigation.
Neither UBS nor the SFC confirmed which IPOs had triggered the investigation but publicly available records show there have been several listings sponsored by UBS that have already led to SFC investigations into possible accounting irregularities.
One was China Metal Recycling, which Hong Kong stock exchange data and court filings show UBS sponsored in 2009. It was delisted in January this year after the SFC in July 2013 concluded it should be wound up, alleging that the firm – one of the mainland’s largest recyclers of scrap metal – had fabricated its sales and profit in forged documents and transactions leading up to its listing.
The High Court granted the liquidation order last year and the ruling showed China Metal Recycling “appeared to have obtained its initial listing by fraud”. Hong Kong Exchanges and Clearing scrapped its listing status in January.
China Forestry, another firm co-sponsored by UBS, has been placed in liquidation and faces likely delisting too. The liquidator in April sued UBS and other advisers on the timber producer’s 2009 Hong Kong IPO for alleged offences, including breach of contract and misrepresentation.