Hong Kong’s securities regulator has revoked the licences of brokerage Union Securities and its two responsible officers for misappropriating client assets, creating false statements, making a false declaration and breaching licensing conditions.
The Securities and Futures Commission (SFC) also banned Ma Kin-Chung and Cheng Tai-Ha from re-entering the industry for life. The pair left Hong Kong in late 2012.
They were found to have misappropriated about HK$400,000 ($38,000) from two clients, who thought they had deposited money to settle securities orders.
As introducing agent, Union Securities failed to refer the clients’ orders to Topmore Securities, with which it had an agreement.
The client funds were paid into an account controlled by Ma in the name of Union Securities’ predecessor company, also called Union Securities, which was not licenced by the SFC at that time.
Ma falsely declared on October 21, 2008 that Union Securities had stopped using the bank account from January 1, 2007. False statements were then sent to the clients, leading them to believe the funds they had deposited were used to settle securities transactions.
The SFC opened its investigation after one of the clients filed a complaint on October 10, 2012, alleging that Union Securities had suddenly closed down and that she had been unable to contact her account executive for more than two weeks.
On 2 July, 2013, the SFC received a complaint from another of the clients.
One of the clients had opened a securities account with Union Securities' predecessor firm in 1993 with Ma’s assistance. She had called Ma to give him order instructions, then Ma had called her to confirm the trades. She then deposited funds to settle the transactions, and subsequently received false statements setting out her holdings of various securities.
Union Securities’ licence prohibited it from holding clients’ assets and conducting business other than communicating offers to effect dealings in securities to an execution broker.
Further, it was found to have failed to maintain the minimum required liquid capital of HK$500,000, comply with notification requirements and cease dealing in securities when it was unable to maintain the required level of liquid capital.
In addition, Union Securities had concealed from the SFC an overdraft in one of its accounts. It also provided false and/or misleading information to the regulator in its monthly financial returns for January to August, 2012.
Ma was directly responsible for the breaches while Cheng connived in them, or was negligent, the SFC said.
Because Union Securities defaulted, the firm's clients are eligible to lodge claims to recover their losses.
In reaching its decision, the SFC determined that the regulatory breaches of Union Securities, Ma and Cheng were egregious and deliberate, and that the two had been seriously dishonest and abused their clients’ trust. It also took into consideration the clients’ financial losses of HK$400,000.
Ma and Cheng were licenced under the Securities and Futures Ordinance to deal in securities. Their licences were suspended on April 11, 2013.