SFC and ICAC raids on Enigma network companies spread; Lau says no “systemic effect”

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The SFC and ICAC make rare joint raids and arrests follow. More to come as Webb’s Enigma network comes under fire. The world asks if this is a healthy clean up or sign of systemic rot.

Hong Kong’s financial authorities have continued to step up their efforts to clamp down on malfeasance in order to make the city’s capital market safer and more attractive to investors.

Hong Kong’s Independent Commission Against Corruption (ICAC) and Securities and Futures Commission (SFC) have joined hands for the first time to crack down on illegal behavior. Last week, the two bodies raided offices in multiple locations and have arrested Quincy Wong, chairman of the city’s largest independent insurance and MPF schemes brokerage firm Convoy Global Holdings on suspected corruption.

In a filing to the local bourse late Friday night, the company said Vice-chairman Rosetta Fong Sut-sam, executive director Christie Chan Lai-yee and former chief executive Mark Mak Kwong-yiu were also arrested.

Reportedly, the executives were involved in lending activities that may be considered corrupt. Share trading of the company has been halted since Thursday.

“We still come to work after the news broke and daily operation seem to be normal, at least on the surface”, an employee of Convoy who preferred to remain anonymous told Harbour Times. “However, I am aware quite a few of people have resigned over the past few weeks, although I am not sure if that relates to this incident.”

“It is not uncommon to see groups of people protesting and complaining about our products and how we ‘cheated their money’. Sometime they just protest in front of our building’s lobby, but there were a couple times they made their way to our offices and we had to lock our doors to restrict access”, the person added.

The ICAC and the SFC normally conduct investigations separately, as they operate under different sets of laws. While ICAC is given legal powers to investigate corruption, SFC’s main responsibility is to regulate the stock market.

“The probe was very significant”, said Ashley Alder, the SFC ‘s chief executive. “The two agencies worked really, really well together, as different skill sets were contributed from both sides to deal with different objectives. This will set the scene for future investigations”.

While Alder refused to comment if there would be more joint operations in the future, he noted that there is a high chance for situations where it would be appropriate again.

In fact, Convoy is not the only financial service firm being investigated by regulators. Lerado Financial Group, another Hong Kong-listed company, was ordered by the SFC to suspend trading in June. The firm was alleged to have given misleading information in a 2015 announcement, Lerado explained in a stock exchange filing.

Lerado and Convoy are part of the “Enigma network”, which comprises of 50 Hong Kong-listed small-cap companies with cross shareholdings in each other, identified by independent investor David Webb earlier this year.

Earlier this week, the SFC reported in its third quarter report that it conducted 80 inspections of licensed firms to ensure they were compliant to the rules. It made 2,300 requests for trading and account records from intermediaries amid the increased stock market rally and turnover.

“The incident is not likely to have caused adversely systematic effect in the market”, Secretary of the Financial Services and the Treasury James Lau said over the weekend. “However, regulators would continue to monitor market behavior to prevent potential bubbles.”



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