HONG Kong’s securities watchdog last month searched the offices of about a dozen finance firms and individuals as part of a probe of company listings on the Nasdaq exchange, according to people familiar with the matter.
The Securities and Futures Commission (SFC) is reviewing Hong Kong brokers, representatives of US underwriters and investors backing the Nasdaq-listed companies in Hong Kong, the people said, asking not to be identified discussing a confidential investigation. The probe centres around so-called pump-and-dump operations, where people may have colluded to cause wild price swings, the people said.
The moves come several months after the New York exchange raised concerns about Hong Kong-based firms, which were queried about their pre-IPO investor identity, relationships with the company and share allocation, Bloomberg News reported earlier.
It’s not clear if the investigation was initiated solely by the Hong Kong watchdog or if it was part of an action stemming from the US, the people said. The full scope of the enquiry and its current status are unclear. Some SFC probes never result in charges and those that do can often take years to become public.
An SFC spokesperson and a representative for Nasdaq both declined to comment.
Nasdaq has become a popular choice for Hong Kong-based small- and medium-sized businesses as the local marketplace, known as GEM, has struggled for years. Local practitioners have pointed to the tight regulation and slow approval process that deters firms from listing on their home market.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Even after relaxing rules this year, Hong Kong’s GEM has attracted few listings, with only three initial public offerings in 2024.
About 55 firms from China and Hong Kong have floated shares on Nasdaq this year, raising a combined US$1.3 billion. Some IPOs have been rocky, with shares doubling after the listing and then plummeting. Others have slid by more than half since the IPO.
As part of the earlier review, Nasdaq officials asked about the backgrounds of the selling shareholders, their ties and history with the company and to each other. In some cases, Nasdaq required documentation to support the valuation of the private shares, as well as bank documents to prove money actually changed hands in the purchase, people familiar have said.
Hong Kong’s securities law enables the SFC to take action against people accused of committing fraud or deception regarding an overseas listing if the regulator has reason to believe that “substantial activities constituting the crime” occurred within the city, according to section 300 of the Securities and Futures Ordinance.
Hong Kong is seeking to rebuild its brand as an international financial centre after Covid and a harsh Beijing crackdown that silenced the once-active political opposition. The watchdog in recent months stepped up global enforcement efforts by arresting wanted suspects and tracking down wrongdoers.
“We will continue working closely with our local and international counterparts to tackle fraudulent schemes and bring suspected wrongdoers to justice,” SFC’s executive director of Enforcement Christopher Wilson said after a suspect was transfered from Singapore in October. “Investors can be assured that we will use all legal powers at our disposal to protect the integrity of Hong Kong’s financial markets.” BLOOMBERG
