HK regulator sues StanChart, UBS, KPMG over IPO

HONG KONG • The securities regulator in Hong Kong has filed a lawsuit against Standard Chartered, UBS Group and audit firm KPMG over an initial public offering by China Forestry Holdings in 2009.

The Securities and Futures Commission (SFC) is seeking unspecified damages for minority shareholders related to alleged "market misconduct" by the defendants connected to China Forestry's IPO prospectus, and the company's financial statements for 2009 and for the first half of 2010, papers filed with the High Court on Monday show.

StanChart and UBS were joint sponsors of China Forestry's US$216 million (S$306 million) first-time share sale in November 2009, while KPMG was its auditor, data compiled by Bloomberg shows. The two banks had previously disclosed potential regulatory action for their work on unspecified IPOs in Hong Kong. UBS said the SFC move could result in its suspension from working on first-time share sales in the city.

Spokesmen for all the parties declined to comment.

The regulator has been tightening oversight of the banks that underwrite IPOs after some deals saddled investors with losses in recent years. Hong Kong was the second- biggest market for new listings last year with US$25.2 billion of deals, trailing only the United States, data compiled by Bloomberg shows.

UBS ranked 18th in arranging Hong Kong IPOs last year, down from 11th in 2015, the data shows. StanChart shut its equity capital markets business in 2015, as part of a broader exit from institutional equities to cut costs.

The SFC also sued China Forestry, its former chairman Li Kwok Cheong and former CEO Li Han Chun, the court documents show.

The regulator is seeking compensation from the defendants to "restore" independent minority shareholders who had bought China Forestry stock and held the equity at the time trading was suspended in January 2011, according to the court documents.

Trading in China Forestry has been halted since then and it was in the process of delisting after financial irregularities were discovered. Liquidators were appointed for the logging company in June 2015 by a court in the Cayman Islands, where it is incorporated.

The liquidators, Borrelli Walsh, last April filed a writ of summons against StanChart, UBS and other advisers on the IPO, alleging offences including breach of contract and misrepresentation.

In October 2013, the SFC introduced a system under which banks that sign off on listings, known as sponsors, will be held accountable if offer documents contain untrue statements.

It also warned that bankers on such deals can be held criminally liable.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on January 19, 2017, with the headline 'HK regulator sues StanChart, UBS, KPMG over IPO'. Print Edition | Subscribe