Hong Kong’s Market Misconduct Tribunal (MMT) has found that Tiger Asia Management and two of its senior officers, Bill Sung Kook Hwang and Raymond Park, engaged in market misconduct in Hong Kong
The MMT has ordered that Tiger Asia and Hwang be banned from trading securities in Hong Kong for four years (the maximum period is five years) without leave of the court. The MMT has also issued cease and desist orders against both the hedge fund firm and Hwang.
This follows Hwang, Park and Tiger Asia in January this year admitting to insider dealing when trading shares of Bank of China and of China Construction Bank in December 2008 and January 2009 and of manipulating the price of CCB shares in January 2009.
In its decision, the MMT found that Hwang’s conduct constituted “serious misconduct” and showed that “little trust can be placed in Bill Hwang’s integrity”.
Tiger Asia and Hwang had argued no orders should be made against them by the MMT.
Although the MMT found that Park had engaged in market misconduct, they decided to make no order in relation to him, given the evidence that he has suffered an incurable and seriously debilitating brain injury and is in no position to pose any threat to the integrity of the Hong Kong market.
This was the first case directly presented to the MMT by Hong Kong's Securities and Futures Commission (SFC).
In a separate case, the SFC has revoked the licence of John Lawrence, a representative of wealth manager PFC International, and fined him HK$900,000 ($116,000) for failings relating to sales of the EEA Life Settlements Fund to clients.
From March 2009 to October 2011, Lawrence, then chairman and a responsible officer of PFCI, sold the product to 31 clients, found a Securities and Futures Commission (SFC) investigation. The transactions amounted to some $28 million.
The fund should not have been promoted to clients as it was not authorised by the SFC. Classified as execution-only, it was a 'traded life policy product', which acquired and traded in outstanding life insurance policies issued in the US.
A significant number of clients who bought the fund through Lawrence were elderly individuals (over 65), despite the liquidity risk of the fund and the risk of deferral-of-redemption requests associated with it.
Traded life policies, sometimes termed 'death bonds', are issued in the US. Investments in them are based on whole life assurance policies that have been sold before their maturity date to enable the original owner to obtain some benefits whilst they are alive.
Investors buy the right to the payout on the death of the original policyholder. But if the original policyholder survives for longer than expected, the product may not behave as expected.
The UK’s then Financial Services Authority banned such investment products in April 2012 after it uncovered problems with their design and marketing. And the UK's Financial Conduct Authority issued a statement on September 29 this year saying it believed some investors in the product had been mis-sold it.
The SFC found that Lawrence had failed:
- to ensure the suitability of the fund to his clients;
- to ensure that the risks associated with the fund were fully disclosed;
- to document the investment advice given to his clients and provide clients with a copy of the written advice; and
- as a member of PFC’s senior management, to set appropriate standards for his staff to follow to ensure the suitability of products recommended to clients.
Lawrence’s misconduct called into question his fitness and properness to remain a licensed person, said the SFC.
“He blatantly disregarded the firm’s due diligence result and ignored his fundamental duty to ensure suitability of his investment recommendation and to present balanced views regarding the Fund,” the regulator noted.
Lawrence failed to set appropriate standards for his staff to follow and failed to ensure that the firm’s investment advisory functions were properly directed and managed to serve its clients’ best interests, the regulator added.
In deciding on the penalty, the SFC took into account Lawrence’s financial position, his cooperation and his otherwise clean disciplinary record.
He had been licensed by the SFC to deal in securities, issue advice on securities and carry out asset management regulated activities.
Lawrence founded PFCI in 2004 and retired in April 2012 to become non-executive chairman. The firm provides wealth and investment services and focuses on Japanese equity and credit.
In 2013, the average SFC fine for misconduct was HK$126,000 for individuals, according to law firm Freshfields Bruckhaus Deringer.
Separately, the SFC yesterday issued a reminder to all market participants to comply with the requirements under the Short Position Reporting Regime. The regulator said it had identified deficiencies and shortcomings since the implementation of the rules in June 2012.