UBS, StanChart settle 2009 Hong Kong IPO misconduct case

HONG KONG (Reuters) - UBS Group AG and Standard Chartered PLC have agreed to settle a case of alleged misconduct related to a 2009 IPO in Hong Kong, in a move expected to end uncertainty about the Swiss bank’s ability to lead stock listings in the city.

FILE PHOTO: A UBS advertisement is displayed on top of a commercial building in Hong Kong, China May 2, 2017. REUTERS/Bobby Yip/File Photo

While StanChart closed its equity business in 2015, UBS was expected to appeal an unprecedented 18-month ban on sponsoring initial public offerings (IPOs) in the Asian financial hub, which was imposed, sources say, because of its role in the listing of a firm that subsequently collapsed.

StanChart and UBS banker Cen Tian were scheduled to also appeal against disciplinary action by the Securities and Futures Commission (SFC) over alleged misconduct during the listing of a now defunct Chinese timber company, which the two banks led.

But the banks reached a settlement ahead of the appeals, a counsel for SFC, Jat Sew-Tong, told a three-member Securities and Futures Appeals Tribunal on Monday, adding that details of the settlement would be released at a later date.

The high-profile case, one of many being investigated by the SFC, is seen as a test of mounting scrutiny of IPO practices in a city where helping firms list is big business for banks.

“The settlement is good news for UBS, as at least now it knows what its capabilities are,” said Benjamin Quinlan, CEO of consultancy Quinlan & Associates.

A ban on leading IPOs, if implemented, would begin once the appeals process has been exhausted, but the uncertainty around whether or when it might come into effect has already hurt UBS’ ability to pitch for sponsor work in Hong Kong.

Last year, UBS, which was also fighting a HK$119 million ($15 million) fine from the 2009 IPO case, sponsored just one IPO, according to Dealogic, though it advised on ten in total.

UBS and Standard Chartered in Hong Kong declined to comment on news of the settlement. An SFC spokesman said the regulator had nothing more to add.

While UBS has not identified the IPO in question and the SFC has not confirmed it, people with knowledge of the matter have said it was that of China Forestry.

The timber merchant raised $216 million in its IPO, but 14 months after listing, trading of its shares was suspended when its auditor, KPMG, discovered irregularities.

The company was subsequently liquidated.


In the wake of a slew of scandals among newly traded firms earlier this decade, the SFC has been cracking down on banks not properly carrying out their duties as sponsor.

In October, the SFC said it had issued nine IPO sponsors with “decision notices” informing them of intended enforcement measures.

Hong Kong IPOs need at least one sponsoring bank, which typically takes the lead in running the IPO and collects a larger proportion of fees than banks listed only as bookrunners.

Sponsors must conduct due diligence to assess the company being listed, and are responsible for assuring potential investors that its IPO prospectus is accurate.

Last year, the SFC imposed a $7 million fine on Citigroup for due diligence failures during its sponsorship of Real Gold Mining’s 2009 IPO and $3 million on China Construction Bank International over its sponsorship of the failed 2014 IPO of seafood company Fujian Dongya Aquatic.

“We expect to see a number of the SFC’s sponsor actions reach a conclusion during the course of 2019,” law firm Freshfields said in a recent report.

Reporting by Alun John and Sumeet Chatterjee; Editing by Christopher Cushing and Himani Sarkar