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Hong Kong – SFC Revokes Mega Capital’s Sponsor License.

13 May 2012

 

The Securities and Futures Commission (SFC) has revoked Mega Capital (Asia) Company Limited’s (“Mega Capital”) license to advise on corporate finance and fined it HK$42 million for failing to discharge its sponsor’s duties in relation to the listing application of Hontex International Holdings Company Limited (“Hontex”) in 2009.  For a summary of other key enforcement actions to date, please click here to see chart.
 
The SFC’s main findings are as follows:
 
1. Inadequate and substandard due diligence work (e.g., material information, such as transaction figures with the Group, was missing from customer/supplier due diligence questionnaires; no verification of franchisee information provided by Hontex and franchisee transaction records were not obtained; supplier and customer interviews were conducted over the phone on the day of the A1 application); 
 
2. Failure to act independently and impartially (e.g., all interviews with suppliers, customers and franchisees were arranged by Hontex and conducted in the presence of Hontex’s representatives; franchisees’ written confirmations of independence were obtained through Hontex);
 
3. Inadequate audit trail of due diligence planning and work (e.g., no records of background or other due diligence searches conducted on suppliers, customers and franchisees);
 
4. Inadequate supervision of its staff (e.g., most of the due diligence work was handled by junior and inexperienced staff); and 
 
5. Breach of the sponsor’s undertaking and filing of an untrue declaration with the Exchange.  
 

 

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