Hong Kong’s Securities and Futures Commission (SFC) has handed life bans for misconduct to former Salisbury Securities directors Roger Albert John and Hamish Gordon Cruden.
An SFC investigation found the securities firm had misused or misapplied securities and sale proceeds to settle another client’s instructions and to discharge its own operational expenses; failed to maintain the required minimum level of liquid capital from April 2012 to February 2013; and provided false and misleading information to the SFC about its liquid capital in financial returns.
John was held directly responsible for Salisbury’s misconduct because he authorised the use of securities and monies belonging to clients for the settlement of another client’s instructions, the SFC stated.
He also used the proceeds for the firm’s operational expenses and for his own personal expenses; masterminded the window-dressing of activities of Salisbury's liquid capital; and submitted false and misleading financial returns to the SFC.
Cruden, meanwhile, moved to Manila in 2011 but remained a director and responsible officer of Salisbury. But he failed to keep himself informed of Salisbury’s business and did not visit the firm’s office despite making regular trips back to Hong Kong, the SFC stated.
As part of Salisbury's senior management, Cruden’s failure to participate at all in the management of the firm contributed to the breaches and failures of the company for which he must be equally responsible, it added.
The disciplinary actions against John and Cruden follow swift action by the SFC in June last year to obtain a winding up order and to close down Salisbury's business after the issuance of an urgent restriction notice in March 2013. The Court of First Instance ordered that Salisbury be wound up on August 28 last year.
A client of Salisbury had complained to the SFC on December 24, 2012, that the firm had failed to account for securities and money it held of his/her despite numerous verbal and written requests.
The SFC found a disparity between the securities and money stated in the client’s monthly statements and Salisbury’s internal records.
On various dates in October 2012 and March and April 2013, Salisbury transferred about HK$7 million ($902,000) and 9,887 Jardine shares to the client’s nominated account. But the money that Salisbury used to partially settle the client’s instructions belonged to other clients.
And on various dates between May 2011 and September 2012, without authorisation, Salisbury instructed its overseas securities custodian to sell 6,000 Jardine shares belonging to the client.
Salisbury used the sale proceeds for its operational expenses, and some was transferred to a bank account controlled by John for his personal use.
Securities and Futures rules require licensed firms that receive or hold client money to establish and maintain segregated accounts with an authorised financial institution and to designate such accounts as trust accounts or client accounts.
The rules also require an intermediary to reasonably ensure that client securities are not deposited, transferred, lent, pledged or re-pledged. A licensed corporation must also maintain a minimum level of liquid capital.
Salisbury’s required liquid capital was HK$3 million. In its returns for April 2012 to February 2013, Salisbury reported liquid capital of between HK$4.76 million and HK$5.97 million. However, the SFC investigation found actual liquid capital was around HK$1.25 million to HK$2.65 million.
Salisbury had been licensed to deal in securities (type 1), advise on securities (type 4) and corporate finance (type 6), and conduct asset management regulated activities (type 9).