AMTD Digital parent behind 32,000% IPO probed before

HONG KONG • The Hong Kong financial group behind an initial public offering (IPO) that stunned Wall Street by soaring more than 32,000 per cent following its debut has drawn scrutiny over deals it arranged in the Asian financial hub.

The previously unreported probe by Hong Kong's securities watchdog into AMTD Group, which is run by former UBS Group banker Calvin Choi, predates the US listing of its unit AMTD Digital.

Despite reporting just US$25 million (S$34.5 million) of revenue in the year ending April last year, AMTD Digital's market capitalisation surged above US$400 billion in August, surpassing giants including Goldman Sachs Group and JPMorgan Chase. The stock has since tumbled more than 90 per cent.

Hong Kong's Securities and Futures Commission (SFC) searched AMTD Group's office and Mr Choi's home in February last year, according to people familiar with the matter. Investigators were looking into its underwriting arrangements as recently as November.

The regulator's scrutiny adds to a string of controversies in recent years involving Mr Choi, who is appealing against a separate SFC decision to ban him from the securities industry for two years over what the regulator said were conflicts of interest from his time as a UBS dealmaker. A unit of China Minsheng Investment Group (CMIG), which bought a stake in AMTD Group in 2015, has accused Mr Choi of financial fraud, even putting up posters with his face on the streets of Hong Kong, according to a 2020 Caixin report.

Mr Choi has appealed against the SFC ruling, and a tribunal will hear the case in December. In September 2020, he told newspaper Tai Kung Pao that the allegations from CMIG were untrue and he had never had any authority over CMIG funds.

The financier's firm is one of at least seven from Hong Kong or China to see wild price swings after listing in the US this year.

US Securities and Exchange Commission chair Gary Gensler has warned about the risks of investing in Chinese companies and last week said the regulator pays close attention to wild market moves.

The SFC probe has focused at least partly on small-cap IPOs that were underwritten by a unit of AMTD Group, the same one that arranged the US listing of AMTD Digital, people familiar with the matter said. Deals scrutinised by the SFC include IPOs of IntelliCentrics Global Holdings and China Bright Culture Group, the people said.

The Hong Kong stock exchange in June last year sanctioned two executives at IntelliCentrics Global after the firm used more than 90 per cent of the proceeds from its 2019 IPO to buy offshore promissory notes through AMTD.

The firm said its purchase was a "temporary and interim measure" to manage IPO proceeds. Even so, the exchange found that the firm and two executive directors had breached its rules.

China Bright Culture Group, a TV producer, invested US$70.8 million, or 60 per cent of the amount raised selling shares in Hong Kong, in a promissory note issued by LR Capital Property Investment, said its 2021 annual report. The full amount was later redeemed.

LR Capital Property shares the same Cayman Islands address as LR Capital Management, in which Mr Choi's father held a stake until December last year. The latter firm, a former majority owner of AMTD Group, played a part in the SFC's decision to ban Mr Choi.

According to people with knowledge of how AMTD arranged deals, the firm worked with investors to cover shortfalls in demand for IPOs. After the IPO, the newly listed company would invest similar amounts into wealth products managed by firms linked to AMTD.

If shares of the newly listed company rose after the IPO, the investors would sell and share the profit with the listed company. The IPO issuer would then redeem its investments in AMTD-linked wealth products. The issuer also agreed to cover any potential losses suffered by the select investors in the IPO, the people added.

"Any kind of manipulation that is obscuring the nature of the cash flow or the nature of the company is a form of market manipulation that regulators are, or should be, watching out for," said Associate Professor Veronique Lafon-Vinais at the Hong Kong University of Science and Technology.

Hong Kong's market has long been plagued by allegations of transactions between closely connected companies. In 2018, the SFC's enforcement chief accused a "nefarious network" of listed companies, brokers, money lenders and advisers of enriching themselves off unsuspecting investors.

The regulator has since clamped down on the small-cap Growth Enterprise Market to root out the extreme price swings caused by the "ramp-and-dump" schemes that inflated the value of thinly traded companies.

BLOOMBERG