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SFC reprimands and fines China On Securities Limited $6 million for failures as share placement agent

Issue date: 2023-05-18 16:30:00

The Securities and Futures Commission (SFC) has reprimanded and fined China On Securities Limited (China On) $6 million over its failures as the placing agent in a share placement between 25 November and 6 December 2019 (Note 1).

On 25 November 2019, China On was appointed as the placing agent by the then majority shareholder (Vendor) of Hon Corporation Limited (Hon Corp) to procure placees to subscribe for shares representing up to 45% of Hon Corp’s total issued share capital (Notes 2 & 3).

The SFC’s investigation found that upon identifying six placees for the placement, China On failed to ensure that it acted within the scope of the Vendor’s authority and adequately safeguard the Vendor’s assets by:

• entering into bought and sold notes relating to the shares on the Vendor’s behalf with the placees, but the transaction prices therein were inconsistent with the placing price agreed with the Vendor (Note 4);
• transferring the shares to the placees without first requiring payment of the purchase price or the certainty that they would be able to make payment of the placing price to the Vendor (Note 5); and
• executing a purported instruction by a third party for part of the shares to be transferred to one of the placees for free without verifying the instruction with the Vendor.

The SFC is of the view that China On’s disregard of the Vendor’s interests constituted gross negligence, if not recklessness, in breach of the Code of Conduct (Notes 6 & 7).

In deciding the sanction, the SFC has taken into account all relevant circumstances, including, there is insufficient evidence to support any finding of dishonesty against China On or the misconduct in question had been recurrent, the importance of sending a deterrent message to the industry that the SFC will not tolerate any grossly negligent or reckless conduct, and the otherwise clean disciplinary record of China On.

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Notes:

1. China On was known as China On Global Capital Group Limited from 22 July 2020 to 19 February 2021, Pan Asia Financial Services Limited from 30 May 2020 to 21 July 2020, China Fund Securities Limited from 10 May 2019 to 29 May 2020 and Hong Kong Wealthy Trade Limited before 10 May 2019.  It is licensed to carry on Type 1 (dealing in securities) and Type 9 (asset management) regulated activities.
2. Hon Corp was listed on the Growth Enterprise Market of the Stock Exchange of Hong Kong Limited until its listing status was cancelled with effect from 22 June 2022.
3. Under the placing agreement between China On and the Vendor, China On agreed: (a) to procure, as the Vendor’s agent, not less than six placees to subscribe for 216 million Hon Corp shares at $0.265 per share (the total agreed placing price amounted to $57.24 million); and (b) when completion takes place, all (but not part only) of a series of businesses shall be transacted, including: (i) China On should pay, or procure the placees to pay, to the Vendor the aggregate placing price; and (ii) the Vendor should allot the shares to the placees.
4. The bought and sold notes were contract notes executed by the Vendor and the respective placees to effect the sale of the shares from the Vendor to the respective placees.  The bought and sold notes contained the date of sale and purchase and name, quantity and consideration of the stock sold and purchased.
5. On 21 January 2020, the SFC issued a restriction notice to China On, prohibiting it from dealing with assets held in six client accounts, which were related to suspected market manipulation in the shares of Hon Corp.  As a result, China On was unable to collect the purchase price from the placees, and failed to pay the same to the Vendor.  Please see the SFC’s press release dated 21 January 2020.
6. Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.
7. Please refer to the Statement of Disciplinary Action for the relevant provisions of the Code of Conduct.

Source: SFC