Hong Kong's Securities and Futures Commission (SFC) has fined A One Investment Company HK$1.2 million ($155,000) for internal control failures relating to unauthorised sales of client securities, as well as unauthorised transfers of more than HK$7 million in client funds to third-party accounts.
The SFC has also suspended A One's responsible officer Alysia Ann Lee for eight months from July 29 to March 28, 2014.
The SFC found that between July 4, 2012, and August 10, 2012, 538,000 shares of trading firm Li & Fung were sold from a client’s account. Some €676,000 and £160,000 were transferred out of the client’s account in 13 transfers to third-party bank accounts in Italy, Norway, Singapore and the UK.
Lee carried out the sales and transactions via a client’s emailed instructions, although the client denies he gave these instructions, claiming his email account was compromised.
The SFC notes A One claimed that clients requesting fund transfers to third-party accounts were required to provide a signed authorised letter, although A One never received the original signed authorisation letter for the 13 transfers.
(It did receive a scanned copy of the signed authorisation letter on the day it processed the client’s request for one of the transfers, but in all other cases, scanned copies of the signed authorisation letters were received only after the transfers had been completed.)
Although there are two officers responsible to endorse the remittance application form A One did not take any steps to verify the identity of the person who gave instructions.
The SFC also found that A One failed to ensure that client assets were adequately safeguarded and also didn’t establish control to ensure client assets were protected from theft, fraud and other misappropriation acts.
Separately, for the first time the SFC is also petitioning the High Court to wind up a Hong Kong-listed company - China Metal Recycling (Holdings) - under section 212 of the Securities and Futures Ordinance to protect the interests of shareholders, creditors and the investing public.
The SFC presented a petition to the city’s Court of First Instance to liquidate China Metal Recycling following an investigation that found the firm overstated its financial position when filing for an initial public offering in 2009, as well as on its annual report.
The SFC also alleges the company’s major subsidiary inflated the size of the company’s business and revenues, and that the majority of the subsidiary’s purchases from three main suppliers for financial years ending 2007, 2008 and 2009 were fictitious as the amounts escalated each year.
Shares of the recycler have been suspended since January after US-based Glaucus Research Group accused it of faking its financial statements, according to other media reports.
The SFC obtained orders from the court to appoint Cosimo Borrelli and Jocelyn Chi Lai Man, both of Borrelli Walsh, as joint and provisional liquidators for China Metal Recycling. They have power to investigate and manage the recycler’s affairs.
The board of directors’ duties have been suspended, and all administrative control is now in the hands of the liquidators, who can void property or share transfers.
The court will hold a hearing on August 2 to decide whether the liquidators will continue their duties. China Metal Recycling will appear and have an opportunity to address the SFC’s findings.