Hong Kong punishes erring underwriter

Hong Kong's stock market regulator shows the bite behind its bark.

A few days after indicating it would enforce tougher rules for IPO sponsors, the Securities and Futures Commission imposed a record fine and revoked the corporate finance advisory licence of Mega Capital (Asia), the underwriter of a troubled 2009 listing.

SFC said Mega Capital, sponsor of Chinese fabric maker Hontex International Holdings' IPO, failed to obtain materially important information from Hontex's suppliers and customers and also failed to act independently and impartially.

It said Mega Capital had conducted inadequate and sub-standard due diligence work and imposed a $5.4 million fine. SFC said, however, it had found no evidence that Mega Capital was involved in any fraud.

Hontex went public in December 2009 but its shares were suspended three months later after SFC alleged it had materially overstated its financial position in its listing prospectus.

SFC has also taken court action against Hontex. It froze the $128 million in proceeds from its listing and is still trying to win the right to return that money to investors. A court hearing is scheduled later this year.

"Given the important role played by sponsors, these failures must be regarded most grimly," said Mark Steward, the commission's director of enforcement.

"The sanctions imposed on Mega Capital should make it clear that the SFC condemns such failure in the strongest terms.”