Tag: market manipulation

Since 2003, the Hong Kong Securities and Futures Commission (SFC) has had the authority, under sections 245, 278, and 299 of the Securities and Futures Ordinance (Ordinance), to address a broad range of market misconduct, including market manipulation.  The maximum criminal penalties for committing market manipulation, under section 303 of the Ordinance, are 10 years’ imprisonment and a fine of HKD$10 million.

While market manipulation has long been an enforcement priority for the SFC, the SFC has noted with concern what it termed “a recent increase in apparent market manipulative activities, in particular the rising number of suspected ramp and dump scams” (generally called “pump and dump schemes” in the United States).  Such scams typically involve fraudulent efforts by perpetrators to induce unsuspecting investors to make immediate purchases of a stock based on false or fraudulent information, rapidly driving up the price of that stock, followed quickly by the perpetrators’ rapid selloff of their own shares in that company before other purchasers recognize that the information on which they relied was false or fraudulent.  The SFC specifically deemed “ramp and dump scams” “a top enforcement priority.”

On July 22, the SFC achieved its greatest success in pursuing ramp and dump schemes, announcing that the Hong Kong Court of First Instance sentenced three individuals, convicted after a 22-day trial, to prison sentences between 52 and 80 months for
their roles in manipulating the shares of Ching Lee Holdings Limited, a leading Hong Kong firm.  The SFC termed it “the heaviest jail sentence imposed on market manipulation cases” since the Ordinance came into effect.

The SFC also reported that the sentencing judge in that case “remarked that the conspiracy in the present case was intricately and meticulously planned.”  The judge took into account “the scale, sophistication and international element of the conspiracy and the false trading, as well as the importance of maintaining the integrity of Hong Kong as
an international financial centre” in concluding “that deterrence and punishment are most important in this case.”  During the scheme, which lasted more than five months in 2016, the participants conducted manipulative transactions among 156 securities accounts under their control and garnered illicit profits of more than HKD$124 million.

In addition to the criminal prosecution, which the Hong Kong Department of Justice conducted, the SFC stated that it is seeking orders under section 213 of the Ordinance “against various local and overseas corporations and individuals, including the three jailed, to disgorge their profits in the manipulative scheme involving Ching Lee shares
and/or restore the affected counterparties to their pre-transaction positions.”

This case is noteworthy not only for the lengths of the sentences imposed, but also for the amount of international cooperation associated with the SFC investigation.  The SFC specifically thanked the China Securities Regulatory Commission, the Hong Kong Independent Commission Against Corruption, the Monetary Authority of Singapore, the Ontario Securities Commission, the Singapore Police Force, the United Kingdom Financial Conduct Authority, and the U.S. Securities and Exchange Commission for their assistance.  Since ramp and dump schemes can be conducted from anywhere through social media or messaging apps, such international cooperation is likely to be critical in future SFC investigations.