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.
For further information, please contact:
Venantius Tan, Partner, Morrison & Foerster
John Moore, Partner, Morrison & Foerster
Morrison & Foerster Capital Markets Practice Profile in Hong Kong