The SFC has quietly stopped disclosing details of successful prosecutions for failure to disclose shareholdings, including the name of the offender and the company involved. This is important information for investors, and we urge them to reinstate it. We also look at its questionable and inconsistent policy of redacting names from historic press releases.

SDI breaches go dark at SFC
6 October 2009

Hong Kong's Securities and Futures Commission (SFC) has rightly gained some applause lately for its handling of various insider dealing and other cases, as well of course as the successful intervention against vote-rigging in the PCCW case, which first brought to their attention. We welcome this more vigorous approach to the use of its powers, but it is important not to lose sight of the more mundane regulatory actions.

In a backward move, the SFC has quietly stopped disclosing details of successful prosecutions for breaches of the securities disclosure-of-interests (SDI) provisions of the Securities and Futures Ordinance, including the name of the offender and the company whose shares are involved. This is the law which requires directors, chief executives and holders of 5% or more of a listed company's shares to disclose their interests.

The last person whose identity we know to have been successfully prosecuted for an SDI breach was announced on 5-Jul-07. Apart from announcements, the SFC also produces a publication called Enforcement Reporter, monthly until April 2007 and quarterly since then. The last SDI offence to be detailed in there was in September 2006. Since then, only summary statistics of the number of cases and fines levied have been disclosed, in the quarterly Enforcement Reporter.

The SFC continues to bring these cases to the magistrates court, which is technically open to the public, but of course the media (let alone governance web sites) cannot economically justify stationing people in the magistracy to report the outcomes of these cases. A single prosecution is not "big news" from a newspaper point of view, although we believe it is relevant to future investors when deciding whether, and at what price, to invest in a company in which a past offender is involved. For example, without the past disclosure, you wouldn't have known that new Birmingham City Football controller Carson Yeung Ka Sing once pleaded guilty to failing to disclose a 25% stake in another listed company.

The SFC's web site does have a list of pending prosecutions (in all areas, including SDI) which they appear to update, deleting the old list, about once per month. This is not the same thing as disclosing the outcome of the cases - and anyway, the list is so scant on detail that one cannot tell to which company's shares the SDI prosecutions relate or even the name of the defendant (unless the defendant is appealing a conviction).

The maximum fine on "summary conviction" in the magistrates court is only HK$10,000. In theory an offender could be jailed for 6 months, but to our knowledge, nobody has been jailed. A case could also be brought "on indictment" to the higher courts, in which case the maximum fine is a level 6 fine of HK$100,000 and 2 years in jail, but again, nobody has been prosecuted that way, not least because of convenience: the SFC can go directly to magistrates courts, but everything above that has to go via the Department of Justice. Plead guilty, and you will get a magistrate's fine of the same order of magnitude as the $1,500 penalty for littering.

So for a substantial shareholder holding a stake over 5% which should have been disclosed, with millions of dollars invested, or for a well-paid director, the maximum $10,000 fine itself is not a big deterrent. Oh, and if you are an overseas investor, the chance of being prosecuted goes down substantially, because the SFC needs a court order to serve a summons outside the HK jurisdiction in the first place. The real deterrent used to be having your name disclosed. Why is disclosure important? Here are three good reasons:

This change of disclosure policy by the SFC roughly coincides with the appointment, effective 25-Sep-06, of Mark Steward as its Executive Director of Enforcement. To be sure, he has changed some things for the better, but this is not one of them. asked the SFC for a list of all successful prosecutions, with the names of offenders and the companies involved, since the SFC "went dark" on these disclosures, but was refused. We urge the SFC to revert to its old disclosure policy and at least publish the details of successful prosecutions in the Enforcement Reporter, if not in real time.

In past articles we have pointed to a number of cases in which the beneficial owners of shell companies involved in share placings, convertible bond issues, or acquisitions have not been disclosed, and where the owners have failed to file disclosures of their interests in the underlying shares. If those persons are ever prosecuted for their non-disclosure, we still won't know who they were. Such a low-key approach is hardly likely to incentivise disclosure.

Footnote: the Rehab Ordinance

Diligent browsers of the SFC web site will also notice that a couple of years ago the SFC started redacting or "unpublishing" names in its archived press releases (like this one) on the grounds that to leave them on the web site untouched would amount to a breach of the Rehabilitation of Offenders Ordinance. This is the law which says that after 3 years have passed since a person has been fined $10,000 or less, or jailed for 3 months or less, then any person who has custody of or access to records kept by a "public officer" shall not disclose any information on the convictions otherwise than in the course of his duties as a public officer.

That law was probably written years before the web came into existence, or even before the earlier advent of searchable electronic news archives (which used to be available on dial-up systems). The SFC's (or its lawyer's) interpretation of this law is in our view overly conservative, as well as inconsistent. The press releases archived on their site are not republished every day. The site is not a portal to any internal records kept by the SFC. No positive action is taken by the SFC to publish the press releases after the day they are released, so it is not clear what act of disclosure by a public officer is taking place. As for consistency, the information can also be found in other documents on the SFC site. For example, the names replaced with {X} in this press release can be found in the SFC Enforcement Reporter of Sep-06. What are they going to do, delete the Enforcement Reporter and trash their archives? If the law applies at all, then why does it apply to HTML but not PDF files? They are both just historic files on a server, like documents in a library. Will public libraries redact any copies of the press releases they hold? Of course not.

We say leave the information out there and let investors decide for themselves whether it is relevant to their decisions. It really isn't practical to try to remove information from the public domain once it is published. The information they are deleting can be found elsewhere in online news archives, if the media reported it. There are also uncensored copies of the press releases on the web, including, and probably in public and private libraries around the city. You can't put the genie back in the bottle. Investors and others can judge for themselves how relevant it is, which will vary from case to case.

Coming soon...

This approach to "unpublication" is not unique to the SFC - we've seen it in other Government-related disclosures, where they put information "on display" and make copies available, trying to claim the virtues of transparency and accountability, and then remove it, as if nobody has recorded it or downloaded it for posterity. Indeed, in an effort to prevent that, there are still a lot of Government "public" registers which are not published on the government web sites, include the registers of political donations, which we captured and published on We'll deal with another one of those registers, involving the employment of former Senior Civil Servants, in a forthcoming article.

©, 2009

Organisations in this story

Topics in this story

Sign up for our free newsletter

Recommend Webb-site to a friend

Copyright & disclaimer, Privacy policy

Back to top