The SFC has frozen accounts at 3 brokerages up to HK$3.81bn, the amount raised by HHH in 2015 in an open offer ($3.19bn) and a CB ($0.62bn) issued to Huarong (2799) and CCB (0939). The SFC suspects false or misleading statements and misappropriation of part of the proceeds.

Revealed: SFC probes Chairman, CEO of Hua Han Health (0587), freezes their accounts
16 February 2019

We do love a good puzzle to test our surveillance systems. Yesterday (15-Feb-2019) the SFC announced that it has issued restriction notices to 3 brokers freezing certain unnamed clients' accounts:

"which are related to the suspected disclosure of false or misleading financial information in various announcements, annual results and annual reports of a listed company, which was likely to induce transactions."

The announcement made no mention of the fact that the 3 Notices (bundled here), dated 30-Jan-2019, were also published yesterday in the Gazette.  Although the Notices still don't name the listed company or clients involved, we can tell you who they are.

The Notices state that:

"the announcements relate to certain fund raising activities in 2015 whereby the Listed Company raised a total sum of HK$3,814,551,000...
the suspected culprits responsible for the disclosure of false or misleading information are two individuals who are part of the senior management of the Listed Company...
The two individuals are also suspected to have misappropriated HK$258,500,000 which forms part of the proceeds raised by the Listed Company through the fund raising activities in 2015, via their wholly-owned and controlled British Virgin Islands (BVI) incorporated companies.
Company A was one of the BVI companies which received part of the suspected misappropriated funds."

In one of the brokerages, Kingston Securities Ltd (Kingston), Company A has 2 margin accounts and at 22-Nov-2018, there were a total of about 2,059m shares of the Listed Company held in the Accounts which the Commission estimates to be worth HK$1,091m.

The Notices state that Company A and "one of the two individuals" held 2 and 1 margin accounts with Haitong International Securities Co Ltd with cash and securities worth HK$220.2m at 30-Nov-2018, and at the remaining broker, Changjiang Securities Brokerage (HK) Ltd, Company A has securities worth HK$63.6m at 19-Nov-2018.

So, based on all that, we can tell you:

  1. The Listed Company is Hua Han Health Industry Holdings Ltd (HHH, 0587). On 2-Feb-2015, HHH announced an issue of convertible bonds to raise HK$620m gross, and on 28-Apr-2015, HHH launched a 1:2 open offer which raised HK$3,194,551,000 gross, making a total of HK$3,814,551,000, which matches the Gazette Notice.
  2. The stock was suspended on 27-Sep-2016 when HHH missed the results deadline for the year to 30-Jun-2016. The suspended price is $0.53 per share, matching the share price implied by the SFC's "estimate" of the value of 2,059m shares at $1,091m. The SFC also issued a direction to suspend the stock on 20-Nov-2018. HHH said that the concerns stated in the direction "are mainly in relation to the annual reports issued by the Company since 30 June 2012."
  3. Company A is Bull's-Eye Ltd (BEL).
  4. The two individuals are Peter Y Zhang, Chairman and co-founder of HHH, and Deng Jie, the CEO and co-founder, who own 68.62% and 31.38% of BEL respectively.
  5. At the last filing (9-Sep-2016), BEL held 2,142,202,643 shares (29.86%) of HHH. The Kingston account in CCASS (the clearing system) shows 1,986,014,295 shares of HHH at 22-Nov-2018, slighly less than mentioned in the Gazette Notice, probably because other shares have been re-pledged for financing or are not in CCASS.

We note that there were 2 subscribers to the $620m convertible bond issue in equal amounts of HK$310m: a wholly-owned subsidiary of China Construction Bank Corp Ltd (0939) and a wholly-owned subsidiary of China Huarong Asset Management Co Ltd (2799), which has been in our news for other reasons.

HHH has not published any results since the half-year to 31-Dec-2015. We haven't been able to deduce how the alleged misappropriation was made.

The SFC describes the investigation as "still ongoing".

©, 2019

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