The Securities and Futures Commission (“SFC“) has recently banned a former responsible officer (“RO“) of Changjiang Corporate Finance (HK) Limited (“CJCF“) from re-entering the industry for seven years as he failed to discharge his duties as a sponsor principal in charge of five listing applications. A sponsor principal is an individual appointed by a sponsor to supervise the transaction team in respect of a listing assignment, and he/she should be involved in the making of the key decisions in the work carried out by the transaction team and should be aware of and responsible for addressing the key risks.
Some of the notable failures of the RO in this case include: in the listing application of Pacific Infinity Resources Holdings Limited (“Pacific Infinity“), CJCF effectively performed no due diligence on a Philippines legislative bill which would adversely affect Pacific Infinity’s core business (which accounted for over 90% of its revenue) in a material way. On another occasion, CJCF advised Perpetual Power Holdings Limited (“Perpetual Power“) to submit a listing application where Perpetual Power obviously lacked the requisite land title certificates in Mainland China to operate its hydropower plants.
Upon investigation, the SFC came to a conclusion that CJCF’s failures in the five listing applications were attributable to the RO’s neglect in discharging his duties as a sponsor principal, an RO and a member of CJCF’s senior management. According to the SFC, the RO failed to:-
(a). exercise due skill, care and diligence in handling the five listing applications, in breach of General Principle 2 of the Code of Conduct for Persons Licensed by or Registered with the SFC (the “Code of Conduct“);
(b). diligently supervise the transaction teams in carrying out the sponsor work, in breach of paragraph 4.2 of the Code of Conduct and paragraph 1.3.3 of the Additional Fit and Proper Guidelines for Corporations and Authorised Financial Institutions applying or continuing to act as Sponsors and Compliance Advisers; and
(c). ensure the maintenance of appropriate standards of conduct by CJCF, in breach of General Principle 9 of the Code of Conduct.
It is observed that the SFC has continued to focus its enforcement efforts on sponsors and sponsor principals in relation to IPO misconduct. The seven-year ban is the longest ban the SFC has ever imposed on an individual for sponsor principal failures and represents a strong message to the industry that failures of sponsor and sponsor principal will not be tolerated by the SFC.