Hong Kong: Enforcement Steps up on Disclosure of Interest Breaches 

April, 2006 -

Investors, investment managers and others with direct or attributed interests of 5% or more of any Hong Kong listed company are subject to Hong Kong’s substantial shareholder disclosure regime. Inadvertent breaches of the regime are common, largely because of its complexity and investors’ misapprehensions of the requirements. A review of enforcement actions over the last year indicates an increasingly aggressive approach by the Hong Kong Securities and Futures Commission (SFC). People have been prosecuted for a variety of breaches including: • failure to notify relatively small changes of level in an already disclosed interest; • failure to keep registers of interests; • failure by a principal to require his agent to report transactions to him; • failure to make requisite disclosures as a director of a substantial shareholder. It is currently rare for bona fide investment managers to be prosecuted. In February 2006, however, a Magistrate fined an SFC licensed investment manager $12,000 plus SFC investigation costs of $13,876. The investment manager had pleaded guilty to failure to make initial disclosure of its interests in a listed company, and failure to make subsequent disclosures when its interests passed through 6% and 8%. In other cases "financial settlements" have been negotiated with the SFC as an alternative to prosecution, though such settlements sometimes also include a public reprimand.

 

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