Hong Kong’s Securities and Futures Commission (SFC) has banned Mr Ng Ka Shun, responsible officer (RO) of Agg. Asset Management Limited (Agg), for life and fined him $1.7m for window-dressing Agg’s financial resources and mismanaging two funds.
In a statement on 23 December, the SFC said it found that Ng began window-dressing Agg’s financial resources when the firm submitted its licence application. He misled the SFC into believing that Agg had satisfied the financial requirements for a licence by window-dressing the firm’s liquid capital as of 31 March 2017.
After obtaining a licence for Agg, Ng continued to perpetuate the facade that Agg had sufficient liquid capital from May 2017 to February 2020 by providing false or misleading information in the financial returns submitted to the SFC to mask its inability to maintain the required liquid capital of $3m for 34 months.
The SFC also found that Agg mismanaged two funds in its capacity as investment manager which seriously jeopardised the interests of the funds’ investors, with Ng responsible for making investment decisions for both funds during the material time.
(i) Conflicts of interest and risk management
In one of the two funds, Agg invested substantially all of its assets in debentures issued by companies controlled by Ng. By doing so, Agg failed to avoid conflicts of interest and properly manage the risks of the fund, resulting in Ng granting loans to himself with the investors’ subscriptions. Agg also caused the fund to invest in two debentures which appeared to have been constructed for the purpose of inflating the fund’s net asset value.
(ii) Investment within mandate, safety of fund assets and valuation
In another fund, Agg failed to properly safeguard the fund’s assets by allowing Ng to withdraw part of the investors’ subscriptions from the fund ultimately for his own benefit. Agg further failed to ensure that the fund’s investments were in line with its stated investment objective and its assets were valued and properly accounted for.
The SFC is of the view that Agg’s window-dressing activities breached the SFO, the Securities and Futures (Financial Resources) Rules (FRR) and the Code of Conduct, thereby jeopardising the integrity of the market. The mismanagement of funds by Agg breached the Fund Manager Code of Conduct, resulting in substantial loss to investors.
The SFC considers that Agg’s regulatory breaches were attributable to the failure of Ng in discharging his duty as the firm’s senior management and RO, including his failure to ensure the maintenance of appropriate standards of conduct and adherence to proper procedures by Agg. As such, Ng’s dishonest conduct amounted to a blatant disregard for law and compliance with regulations.
In deciding the disciplinary sanction, the SFC has taken into account all relevant circumstances, including:
Ng’s actions in window-dressing Agg’s liquid capital position are serious, and demonstrate an outright disregard of the FRR which serve as significant statutory safeguards for the interests of the investors in the market;
the window-dressing activities of Agg started when the firm applied for an SFC licence and lasted until the SFC issued a restriction notice;
- Ng acted dishonestly and exploited the investors of the two funds;
- Ng took the benefit of or is otherwise unable to account for $1.7 million of the subscription proceeds of one of the funds;
removing Ng from the industry is necessary to protect the investing public; and - Ng had an otherwise clean disciplinary record.
The SFC’s Executive Director of Enforcement, Mr Christopher Wilson, said: “The regulatory breaches of Agg brought into focus the concerns highlighted in the SFC’s circular regarding deficiencies and substandard conduct in the management of private funds and discretionary accounts.”
“In order to uphold investor confidence in Hong Kong’s financial markets and protect the interests of the investing public, the SFC will make full use of powers and tools at its disposal to hold asset managers and their senior management accountable for failing to comply with the applicable regulatory requirements,” Mr Wilson added.
Agg was licensed under the Securities and Futures Ordinance (SFO) to carry on Type 1 (dealing in securities), Type 4 (advising on securities) and Type 9 (asset management) regulated activities from 4 May 2017 to 5 July 2024.
