TWO former senior employees of UOB Kay Hian Private Limited (UOBKH) were charged on Wednesday for allegedly lying to the Monetary Authority of Singapore (MAS) in relation to reports on a then Catalist aspirant. Lan Kang Ming, 38, and Wee Toon Lee, 34, each face three charges of providing MAS with false information in October 2018 in relation to due diligence reports on an unidentified company applying to list on the Catalist board of the Singapore Exchange. MAS said in a media statement on Wednesday that it was performing an onsite inspection of UOBKH between June and August 2018, to assess the latter's controls, policies and procedures in relation to its role as an issue manager for Initial Public Offering (IPOs). During the examination, Lan and Wee were said to have provided different versions of a due diligence report relating to background checks on a company applying to be listed on the Catalist board of the Singapore Exchange. UOBKH had acted as the issue manager
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Reuters
21 June 2011
The rash of accounting scandals at Chinese companies could spell defeat for investment banks in Hong Kong in their long-running battle to avoid being made liable for the prospectuses of initial public offerings (IPOs) they sponsor.
The territory’s banks and corporate finance firms have successfully lobbied for years that they should not be held culpable if a company they helped bring public in Hong Kong is later found to have misled investors about its finances or business operations.
That argument will be more difficult to sell now.
A slew of scandals at North American-listed Chinese companies is putting Hong Kong’s market regulator, the Securities and Futures Commission (SFC), under intense pressure to bring in sponsor liability at an upcoming review.
‘The idea that a bank’s responsibility should end the moment a company IPOs makes little sense,’ said Jamie Allen, secretary-general of Hong Kong- based Asian Corporate Governance Association. ‘If you are introducing a company to a market, then you are giving some degree of assurance. If that assurance doesn’t last even one day beyond the IPO, then surely it must be worth less than we are led to believe.’
With Hong Kong being the world’s biggest IPO market for the past two years, banks and other local sponsors have made millions in fees by picking up a small part of the IPO proceeds for every company they bring to market.
The SFC estimates that the total income derived from IPO sponsorship in Hong Kong was HK$4.8 billion (S$761.6 million) and HK$2.2 billion for the years ended Sept 30, 2008 and 2009, respectively.
The SFC argues that the rush of listings has sometimes favoured quickness over quality.
While lawyers and auditors share in the due diligence, it is the investment banks - in this case known as IPO sponsors - which study the company, pitch their services and ultimately underwrite and sell the offering to investors.
In March, the SFC said an inspection of 17 sponsors found a range of deficiencies including inadequate due diligence and making questionable disclosures to the Hong Kong stock exchange during the application process.
The Hong Kong Monetary Authority said in April that it made recommendations to JPMorgan, UBS AG, HSBC Holdings, Royal Bank of Scotland and Deutsche Bank on how to improve their IPO work.
The perception that standards are not improving prompted the SFC’s former chief executive Martin Wheatley to announce last month that the regulator will start a new consultation on sponsor liability this summer.
Banks will not cave in without a fight. They say there’s only so much they can do to stop a company misleading investors.
‘As a bank, you’re not the one committing the fraud. No matter how much we check, there’s always going to be someone clever trying to cover something up,’ said a Hong Kong- based investment banker who did not want to be identified because he is not authorised to talk to the media.
The banker cited examples where IPO sponsors had verified money flows with a company’s bank - only to find out later that the bank itself was fudging the numbers.
Some lawyers are doubtful whether bringing in sponsor liability on its own will really solve the problem. They say Hong Kong lacks the US-style class action system that would facilitate legal action by investors.
‘In Hong Kong there is no class action, so there’s a strong discouragement for investors as if they lose a case they have to pay the other side’s cost - lawyers can’t take on cases on a contingency fee basis,’ said Bonnie Chan, a partner at Davis Polk & Wardwell and former head of Hong Kong Exchange’s IPO transactions department.