The Hong Kong Securities and Futures Commission (SFC) has taken action against two groups suspected of being involved in fraudulent schemes to create a false or artificial appearance of demand for shares in initial public offerings (IPOs).

The SFC has also directed The Stock Exchange of Hong Kong Limited (SEHK) to suspend dealings in the shares of Sichuan Baicha Baidao Industrial Co., Ltd. under section 8(1) of the Securities and Futures (Stock Market Listing) Rules (SMLR), with effect from 9:00 am today.

The regulator has serious concerns that Baicha’s IPO may have been rigged to create an artificial impression of demand for Baicha’s shares. The suspension is necessary or expedient to maintain an orderly and fair market in Baicha’s shares and to protect the interests of the investing public while the SFC’s investigation continues.

In relation to the first suspected syndicate, the SFC has issued restriction notices to six brokers prohibiting them from dealing with or processing assets of up to $4,379,463,215, the largest amount of its kind in the SFC’s history, held in client accounts in the names of Ms Sun Ran and eight related companies namely, Avant Team Limited, Citadel Wealth Limited, Fortuna Capital Management Limited, Gemstone Capital Management Limited (not the Hong Kong corporation licensed with the SFC), Generations Capital Management Limited, Panda Capital Management Limited, Prudent Wealth Global Inc and Timeless Capital Management Limited (Nine Entities). The first suspected syndicate is suspected of being involved in fraudulent schemes relating to the IPOs of Cloudbreak Pharma Inc and Baicha.

In relation to the second suspected syndicate, the SFC has issued restriction notices to 29 brokers prohibiting them from dealing with or processing assets of up to $285,030,265 held in client accounts in the names of Mr Liu Haoran, The Reynold Lemkins Group (Asia) Limited and Kaufmann & Company Pan-Asia Limited (Three Entities). The second suspected syndicate is suspected of being involved in a fraudulent scheme relating to the IPO of Tianju Dihe (Suzhou) Technology Co., Ltd.

The suspected syndicates are suspected of being involved in fraudulent schemes under which portions of IPO proceeds may have been transferred out of listed companies for purported investments in financial products under undisclosed agreements between those companies and the syndicates. These agreements may have enabled IPO proceeds to be secretly channelled back to major IPO placees or their connected parties.

The brokers who received the restriction notices are not the subjects of the SFC’s investigations. The restriction notices do not affect the brokers or their other clients.

The restriction notices prohibit the relevant brokers, without the SFC’s prior written consent, from:

• disposing of or dealing with, or assisting, counselling or procuring another person to dispose of or deal with, the relevant assets in any way; and
• executing any instructions given directly or indirectly by the Nine Entities or the Three Entities.
• The relevant brokers are also required to notify the SFC immediately upon receiving any instructions concerning the prohibited assets.

Parties involved may be ordered to compensate affected investors through a restitution process in the future.

The SFC investigations are continuing.