The Securities and Futures Commission (SFC) of Hong Kong has revoked Mega Capital (Asia) Company Limited’s (Mega Capital) licence to advise on corporate finance and fined it $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.
The brokerage firm will still be allowed to continue to deal in securities but won't be permitted to advise companies on IPOs.
The SFC’s investigation revealed that Mega Capital, a unit of Taiwan financial conglomerate Mega Financial Holding Co., failed to discharge its sponsor’s duties.
Hontex and accounting firm KPMG were under investigation in April 2010, when the Independent Commission Against Corruption (ICAC) charged KPMG senior manager Leung Sze-chit, 32, of offering a bribe of HK$400,000 in February to his subordinate, Lau Shuk-ting, “as a reward for preparing the accountant’s report in the prospectus for the global offering of Hontex.” Lau was later acquitted.
Hontex was "alleged to have disclosed materially false or misleading information in its prospectus dated 14 December 2009, which was likely to have induced investors to subscribe for the Hontex shares,” stated Hong Kong's Security and Futures Commission at the time of the arrest.
(More coverage on the Hontex scandal and KPMG's role can be found here.)
The principal businesses of Hontex and its subsidiaries (the Group) are fabric sales and garment manufacturing (on an Original Equipment Manufacturing basis for apparel owners and for Hontex’s franchisees).
Failure to conduct due diligence
Proper due diligence on the group’s customers, suppliers and franchisees was crucial to the assessment of the authenticity of the Group’s business performance. However, Mega Capital’s due diligence work was inadequate and sub-standard, says the SFC.
Citing an example, the SFC says that material information (like transaction figures with the group) was missing from questionnaires that Mega Capital completed with suppliers and customers.
Mega Capital also failed to follow-up on the missing information. A number of interviews with suppliers and customers were conducted over the phone in haste on the very day that Hontex filed its listing application.
Mega Capital also failed to act independently and impartially, says the SFC.
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