Hong Kong’s capital markets regulator has started Market Misconduct Tribunal (MMT) proceedings against Yorkey Optical International (Cayman) for failing to disclose price sensitive inside information “as soon as reasonably practicable”.
The Securities and Futures Commission’s action was also directed at Yorkey’s chief executive and executive director, Nagai Michio, and its company secretary and financial controller, Ng Chi Ching.
The SFC said it took action against the two men for their reckless or negligent conduct causing the alleged breach by Yorkey of the provisions of the statutory corporate disclosure regime or their failure to take all reasonable measures from time to time to ensure that proper safeguards exist to prevent the alleged breach.
Speaking generally, Mohan Datwani, director of technical and research standards at the Hong Kong Institute of Chartered Secretaries (HKICS), as well as a member of the territory’s Securities and Futures Appeals Tribunal (SFAT), said the regulator’s move showed that the SFC meant business.
“The SFC is serious about regulating the local market and it places a heavy emphasis on vigilance and disclosure. On the matter of disclosure, it is keen about both its quality and impact as set forth in its recent corporate newsletters,” he said.
It was in that vein, he said, that the SFC likely took action.
Yorkey was listed on the Main Board of the Stock Exchange of Hong Kong on February 10, 2006. The statutory corporate disclosure regime under the local Securities and Futures Ordinance (SFO) came into effect on January 1, 2013.
Profit slide
Yorkey recorded a net profit of $1.25 million (HK$9.696 million) in its unaudited interim results for the six months ending on June 30, 2012, with a net profit of $60,000 for its 2012 final results. Its $60,000 2012 net profit represented a decline of 99 percent when compared to the same figure for 2011, $6.685 million.
The securities regulator found that, contrary to the published expectations of Yorkey’s management of significant growth and increasing profitability for the second half of 2012, as compared to the first half of that year, Yorkey sustained material losses in the second half of 2012.
That caused the company to deteriorate financially, causing a significant year-on-year decline to its 2012 profits on a full-year basis. The information about Yorkey’s material losses in the second half of 2012 and its significant financial deterioration were apparent from the figures contained in the internal management accounts, the SFC said.
“These figures would have been a clear indication to the senior management of Yorkey that the results for the second half of 2012 and hence, the full year of 2012, would be much worse than expected,” the SFC said.
Lack of timely disclosure
The information above came to the knowledge of Yorkey and its chief executive from around mid-December 2012 or mid-January 2013, at the latest, the SFC said. “However, it was not disclosed to the public until the publication of Yorkey’s audited annual results for the year ended December 31, 2012 (2012 final results) on March 25, 2013,” the SFC said.
The regulator said information about Yorkey’s material losses in the second half of 2012 and the significant deterioration in its financial performance was specific information regarding Yorkey, price sensitive and not generally known to the public at the material time.
“Had the information been known to the investing public, it would be likely to materially affect the share price of Yorkey,” the SFC said.
Yorkey’s share price fell 21.25 percent over a three-day period from HK$0.80 on March 25 to HK$0.63 on March 28, 2013.
Written by Ajay Shamdasani, a senior staff writer with Thomson Reuters Regulatory Intelligence in Hong Kong. He covers regulatory developments in Hong Kong, India and South Korea. He also writes about money laundering, fraud, corruption, data privacy and cybercrime.
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