HONG KONG: SFC Secures Hong Short Selling Convictions

Thursday April 26 2012

The Eastern Magistrates Court has fined seven investors a total of $71,000, ranging from $2,000 to $30,000 each, after they had pleaded guilty to 11 charges of illegal Hong Kong short selling shares of Imagi International Holdings Limited (Imagi) in May 2010.

Acting Principal Magistrate Mr. David Dufton also ordered the defendants – Kung Ping Cheung, Chan Ki, Siu Kam Fung, Siu Kam Mei, Siu Hung Keung, Ma Siu Fan and Yau Ka Yiu – to pay the Securities and Futures Commission’s (SFC) investigation costs of $21,820.

The defendants placed various orders to sell 31,000 to 16,855,600 shares of Imagi when they did not and could not have reasonable grounds to believe that they had a presently exercisable and unconditional right to sell the shares, thus constituting illegal Hong Kong short selling.

In May 2010, Imagi conducted a rights issue in which all shareholders received four rights for each old share. Each of the rights entitled shareholders to subscribe for one new share. However, not all shareholders exercised their rights to subscribe for the new shares. These non-subscribed new shares became excess rights which other shareholders could apply to subscribe for on top of their own entitlements.

The seven investors subscribed for Imagi excess rights shares and placed orders to sell the amount of shares that they thought they would be allocated or would be able to receive in time for settlement. At the time of short selling Imagi shares, they did not receive the excess rights shares or receive any confirmation as to the time and the quantity of excess rights shares they would receive.