The Securities and Futures Commission in Hong Kong has fined Unicorn Securities and its former responsible officer, $3 million and $200,000, respectively, relating to failures in handling clients’ money.
The responsible officer Chan Hoi Shu, who was primarily responsible for the failures of Unicorn Securities in this connection, was also suspended for a period of 15 months from 12 March 2016 to 11 June 2017.
The Securities and Futures Commission (SFC) discovered that Chan masterminded and involved the firm in the malpractice in handling its clients’ dividend entitlements, initiated and directed his staff to act contrary to clients’ instructions and to transfer clients’ money and securities to his personal accounts and instructed the share withdrawal from the client account without the required written direction.
Mishandled Client Assets
The SFC further found that between March 2011 and December 2013, Unicorn Securities mishandled its clients’ dividend entitlements of shares of HSBC Holdings (HSBC) by going against clients’ instructions in their choices between cash or scrip dividends when submitting their instructions to Hong Kong Securities Clearing Company, and giving the clients’ dividends to others.
On seven occasions, Unicorn Securities chose and received scrip dividends for all clients regardless of the clients’ instructions. After allocating the dividends to clients who elected to receive scrip dividends, Unicorn Securities deposited the remaining scrip dividends into the account of Chan or the account of a client. Chan would then sell these HSBC shares in the market and pay Unicorn Securities an amount equivalent to the clients’ cash dividend entitlements for making payments to the clients who chose cash dividends. Chan kept the profit arising from the difference between the amount he received from selling the HSBC shares and the amount he had to pay to the firm.
Inadequate Internal Controls
Separately, Unicorn Securities chose and received cash dividends for all the clients on two occasions. For clients who opted for scrip dividends, Unicorn Securities would give the clients’ cash dividends to Chan who would then buy HSBC shares in the market to meet clients’ requests for scrip dividend, and he made a profit in the process.
The SFC also found that Unicorn Securities had connived in Chan’s transfer of client money into his personal account and withdrew securities from a client’s account without the necessary written direction from the client.
The conduct of Unicorn Securities demonstrated its failure to put in place adequate and effective internal controls to ensure compliance with relevant regulatory requirements in relation to segregation and proper handling of client assets.
