HK watchdog fines, revokes corporate finance advisory licence of firm for false IPO info

HONG KONG, (Reuters): Hong Kong’s securities regulator on Sunday fined Mega Capital (Asia) HK$42 million ($5.41 million) and revoked its corporate finance advisory licence for disclosing false and misleading information in a 2009 initial public offering for a Chinese fabric maker for which it was the sole sponsor.

The Securities and Futures Commission (SFC) said in a statement that its investigation had revealed that broker Mega Capital had failed to discharge its duties as sponsor in the Hontex International Holdings IPO and found “inadequate and sub-standard due diligence work”.

A spokesman said the fine was the highest ever imposed by the SFC.

The regulator’s action comes days after a source told Reuters that Hong Kong’s financial market watchdog will launch a public consultation in the next couple of weeks that seeks to toughen rules for banks sponsoring IPOs, including holding them liable for faulty deal documents.

The SFC is set to issue a two-part consultation paper, with one section proposing to toughen the code of conduct for IPO sponsors and the second making them liable for the contents of listing prospectuses, according to sources with direct knowledge of the matter.

In the Hontex case, the SFC said Mega Capital had failed to obtain materially important information from Hontex’s suppliers and customers and also failed to act independently and impartially.

“Given the important role played by sponsors, these failures must be regarded most grimly,” said Mark Steward, the SFC’s director of enforcement.

“The sanctions imposed on Mega Capital should make it clear that the SFC condemns such failure in the strongest terms,” Steward said in a statement.

The SFC said, however, that it had found no evidence that Mega Capital was involved in any fraud.

Hontex shares last traded in March 2010 in Hong Kong when they were suspended pending the investigation into the IPO process by the SFC.