Regulator Loses Hong Kong Court Appeal

The Hong Kong Securities and Futures Commission ("SFC") has had its appeal against a lower court ruling turned down by the Court of First Instance. The SFC had appealed a decision by the Eastern Magistracy from 2014, acquitting C.L. Management Services Limited and its sole owner and director Clarea Au Suet Ming of the offence of carrying on a business in advising on corporate finance. The Court of First Instance found that the Magistrate did not make any error in law and was entitled to make a factual finding to acquit C.L. Management and Au of the offence of carrying on a business of advising on corporate finance without a licence, the SFC said. 

C.L. Management and Au also had their appeals turned down for the same case, in which they were convicted of on three counts of holding out as providing advisory services on corporate finance without a licence from the SFC. They were convicted on 29 April 2014 and fined a total of HK$1.5 million. Au was also sentenced to a total of six months’ imprisonment suspended for 18 months. 

In dismissing the appeal of C.L. Management and Au, the Court of First Instance said there were no merits in any of the grounds advanced on behalf of them. 

In particular, the Court rejected their argument the offence of carrying on a business of regulated activity without a licence requires proof of a mental element, the SFC noted.

The SFC initially found that C.L. Management had entered into service agreements with three firms between October 2010 and January 2012, for advising on their listing applications. It said the court accepted that the scope of services under the agreements constituted advising on corporate finance, and that the company represented itself as being prepared to advise the companies on their listing applications. It also said Au was found guilty of conniving or giving consent to the offences committed by C.L. Management. 

Under Hong Kong's Securities and Futures Ordinance ("SFO"), advising on corporate finance is a regulated activity which requires a type 6 licence from the SFC. The company and Au were both convicted on three counts of holding out as carrying on a business of advising on corporate finance without a licence, in breach of s. 114(1)(b) of the SFO. 

The activities of Au and C.L. Management occurred before the introduction the SFC's 2013 reforms to Hong Kong's sponsors regime, which introduced tougher requirements and criminal penalties.

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North Asia editor for Thomson Reuters Regulatory Intelligence. He is based in Hong Kong.