Hong Kong Regulator Sues StanChart, UBS Over 2009 Timber IPOBy
Banks sponsored China Forestry’s initial share sale in 2009
SFC also sues auditor KPMG, China Forestry’s founders
Hong Kong’s securities regulator has filed a lawsuit against Standard Chartered Plc, UBS Group AG and audit firm KPMG LLP over an initial public offering by China Forestry Holdings Co. in 2009.
The Securities and Futures Commission is seeking unspecified damages for minority shareholders related to alleged “market misconduct” by the defendants connected to China Forestry’s IPO prospectus, and the company’s financial statements for 2009 and for the first half of 2010, according to documents filed with Hong Kong’s High Court on Jan. 16.
Standard Chartered and UBS were joint sponsors of China Forestry’s $216 million first-time share sale in November 2009, while KPMG was its auditor, data compiled by Bloomberg show. The two banks had previously disclosed potential regulatory action for their work on unspecified IPOs in Hong Kong. UBS said the SFC move could result in its suspension from working on first-time share sales in the city.
Spokesmen for Standard Chartered, UBS, KPMG and the SFC declined to comment.
The regulator has been tightening oversight of the banks that underwrite IPOs after some deals saddled investors with losses in recent years. Hong Kong was the second-biggest market for new listings last year with $25.2 billion of deals, trailing only the U.S., data compiled by Bloomberg show.
UBS ranked 18th in arranging Hong Kong IPOs last year, down from 11th in 2015, the data showed. Standard Chartered shut its equity capital markets business in 2015, as part of a broader exit from institutional equities to cut costs.
The SFC also sued China Forestry, its former Chairman Li Kwok Cheong and former Chief Executive Officer Li Han Chun, the court documents show.
The regulator is seeking compensation from the defendants to “restore” independent minority shareholders who had bought China Forestry stock and held the equity at the time trading was suspended in January 2011, according to the court documents.
China Forestry has been halted from trading since then and was in the process of delisting after financial irregularities were discovered. Liquidators were appointed for the logging company in June 2015 by a court in the Cayman Islands, where it is incorporated.
The liquidators, Borrelli Walsh, last April filed a writ of summons against Standard Chartered, UBS and other advisers on the IPO, alleging offenses including breach of contract and misrepresentation.
In October 2013, the Hong Kong securities regulator introduced a new system under which banks that sign off on listings, known as sponsors, will be held accountable if offer documents contain untrue statements. It has also warned that bankers on such deals can be held criminally liable.
— With assistance by Chanyaporn Chanjaroen, Alfred Liu, and Crystal Tse