Integrity Focus

The Securities and Futures Commission (SFC), the Independent Commission Against Corruption (ICAC) and the Accounting and Financial Reporting Council (AFRC) have conducted the first tripartite operation involving two Hong Kong-listed companies on suspicion that they falsified corporate transactions totalling HK$193 million (approximately RMB177.56 million) (Note 1).

A total of 16 premises were jointly searched by the three agencies. In the joint operation, three persons, including an executive director of a listed company, were arrested by the ICAC for suspected offences of agent using documents with intent to deceive his principal under the Prevention of Bribery Ordinance.

The suspected fictitious transactions were uncovered during the course of a joint SFC- ICAC operation against the suspected ramp-and-dump syndicate (Note 2).

The investigation revealed that the management of the two companies listed on the Stock Exchange of Hong Kong Limited had allegedly conspired with members of the syndicate to falsify corporate transactions purporting that the two listed companies had conducted various transactions with a number of companies in Hong Kong and Mainland China between May 2018 and December 2021, resulting in overstatements of HK$83.9 million (approximately RMB77.2 million) in their revenue and misstatement of assets in the sum of HK$109.2 million (approximately RMB100.5 million). Such overstatements and misstatement of assets might lead to disclosure of false or misleading information in the interim results and/or annual reports of the two listed companies.

The SFC, the ICAC and the AFRC conducted the joint operation respectively in relation to suspected corporate fraud and misconduct, corruption offences of agent using documents with intent to deceive his principal and auditors’ misconduct concerning the said suspected fictitious transactions.

The SFC’s Executive Director of Enforcement, Mr Christopher Wilson, said: “Directors of listed companies are entrusted to govern truthful and accurate financial disclosures which serve as the bedrock of our capital markets. The tripartite operation, and the first with the AFRC, underscores our shared commitment to holding accountable those who abuse that trust and defraud investors. Our partnership with the ICAC and AFRC also allowed us to pool our resources, expertise and intelligence to bring swift enforcement actions against individuals and corrupt corporate practices that undermine market integrity and erode investor confidence.”

“We appreciate the China Securities Regulatory Commission for their extensive assistance and continued support in combating cross-boundary offences and misconduct,” added Mr Wilson.

Deputy Commissioner and Head of Operations of the ICAC, Mr Ricky Yau Shu-chun, said: “The tripartite operation showcases our common goal in upholding the integrity of the financial market. The ICAC will continue to closely collaborate with the SFC and the AFRC, as well as other financial regulators, to combat corruption, illicit activities and misconduct relating to listed companies. By adopting our time-tested three-pronged strategy combining enforcement, prevention and education, the ICAC will continue to work in concert with financial regulators to enhance corporate governance and professionalism. We will strive to maintain a fair business environment in Hong Kong, to sustain Hong Kong’s status as a clean international financial centre and to ensure the trust of stakeholders in the financial system.”

Ms Janey Lai, Acting Chief Executive Officer of the AFRC, said, “The Joint Operation represents the AFRC’s absolute commitment to take all necessary actions to ensure integrity and quality of financial reporting and audit in Hong Kong. As the financial markets of Mainland China and Hong Kong are interconnected, the cross-border collaboration between regulators on both sides will intensify and is expected to bring about more effective enforcement. These positive outcomes contribute to the resilience of the financial market, safeguard the interests of investors, reinforce public confidence in the quality of financial reporting, and uphold Hong Kong’s status as an international finance centre.”

No further comment will be made as investigations are ongoing.

Notes:
1. The joint operation was conducted under the arrangement of the Memoranda of Understanding respectively signed by the SFC with the ICAC and the AFRC. Please see the websites of the SFC, the ICAC and the AFRC.

2. Please see the joint press releases of the SFC and the ICAC dated 10 November 2022 and 15 March 2023.