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Court dismisses challenge to SFC’s power of issuing restriction notices

Issue date: 2022-09-28 16:53:11

The Court of First Instance has dismissed a judicial review application against the Securities and Futures Commission (SFC) relating to restriction notices issued in an ongoing investigation into a suspected “ramp-and-dump” scheme (Notes 1 & 2).

The judicial review application, brought by Mr Tam Sze Leung, Ms Kong Chan and Ms Lee Ka Lo, sought to challenge the restriction notices issued on 15 March 2021 by the SFC under sections 204(1)(a) and 205(1) of the Securities and Futures Ordinance (SFO) to freeze their assets in various trading accounts held with certain licensed corporations.  They contended that sections 204(1)(a) and 205(1) exercised on the basis of section 207(e) of the SFO was, amongst other things, not prescribed by law and a disproportionate interference with their property rights and was therefore unconstitutional.

Mr Ashley Alder, the SFC’s Chief Executive Officer, said: “We welcome the Court’s decision.  The SFC’s statutory powers to issue restriction notices to freeze suspects’ assets held with licensed corporations during the course of investigations are important to the SFC in carrying out its functions under the SFO.  They enable the SFC to take immediate action to protect investors and the public interest.”

The Hon Mr Justice Coleman held in his judgment that:

• The applicants’ challenge to the constitutionality of sections 204(1)(a) and 205(1) exercised on the basis of section 207(e) of the SFO fails.
• The use of the restriction notices under those sections of the SFO satisfied the prescribed by law requirement, in that there is sufficient clarity as to the scope of the powers exercised under these provisions and the manner of their exercise.  There are also sufficient legislative safeguards in place against abuses.
• The restriction or limitation from the exercise of powers under sections 204 and 205 is on balance no more than is necessary to accomplish the legitimate aim of the protection of investors and the public interest and strikes a reasonable balance between the societal benefits of the encroachment and inroads made with the constitutionally protected rights of the individual and does not result in an unacceptably harsh burden on the individual.   

The Court also ordered the applicants to pay the SFC’s costs in relation to these proceedings.

End

Notes:

1. The judgment is available on the Judiciary’s website (Court Reference: HCAL177/2022).
2. “Ramp-and-dump” scheme is a form of market manipulation where fraudsters use different means to “ramp” up the share price of a listed company and then “dump” the shares to other investors at an artificially high price.  The fraudsters also used social media platform to lure the unsuspecting investors to buy the shares at an artificially high price while the syndicate members were offloading for profit leaving innocent victims with substantial financial losses.

Source: SFC