Jiayuan (2768) Chairman should expect the SFC's call
23 January 2019
Shum Tin Ching (Mr Shum), Chairman and majority shareholder of Jiayuan International Group Ltd (Jiayuan, 2768) has some explaining to do. At 20:32 on 17-Jan-2019, Jiayuan filed this announcement in relation to the 80.6% stock plunge that day, stating:
"To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiry, the Board would like to inform the shareholders of the Company and potential investors that:
...
(c) the Board is not aware of any specific reasons for such price and volume movements nor of any information which must be announced and published to avoid a false market in the shares of the Company nor of any inside information that needs to be disclosed under Part XIVA of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)."
The announcement stated that a board meeting was held at 16:30 that day (after the market closed) by telephone, and Mr Shum took part. The announcement was signed by the Chairman himself. Mr Shum holds his stake via a wholly-owned company, Mingyuan Group Investment Ltd. In an announcement pubished at 06:33 today (23-Jan-2019) and dated yesterday, Jiayuan states:
"Mr Shum reported to the Board...that due to the unusual and rapid downwards movements in the trading price of the shares of the Company on 17 January 2019, there was a forced sale of an aggregate of 93,620,000 shares of the Company...on 17 January 2019, arising from partly enforcement of share charges and/or margin financings in respect of certain shares held by Mingyuan Investment by certain securities brokers..."
That dump was about 3.73% of the issued shares. The announcement does not say when he reported to the Board, but by the time of the Board meeting, and certainly by the time of the first announcement, any director who had "made all reasonable enquiry" should have been able to determine whether any of his pledged shares had been sold off by his brokers, and should have informed the rest of the Board accordingly. It appears then that Mr Shum either intentionally or recklessly withheld Inside Information (which would be market misconduct) and caused Jiayuan to put out a false and misleading statement to the market, inducing transactions, which is an offence under Section 298 of the Securities and Futures Ordinance, punishable by up to 10 years in jail. He should expect a call from the SFC.
We note that following the first announcement, the stock rebounded on Friday (18-Jan), up 74.6% to $4.40, and up again on Monday to $4.78. However, the first hint of trouble came on Monday night (21-Jan) when a disclosure of interest showed that Mr Shum's holding had been slashed on Thursday. That caused a renewed drop of 22.6% on Tuesday (22-Jan), until the stock was suspended at lunchtime, where it remains.
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