SFC Reprimands Mansion House Securities (FE) Limited and Revokes the Registrations of Lai Nung Chi Donald
17 Mar 1999
The Securities and Futures Commission announced today that it had reprimanded Mansion House Securities (FE) Limited (MHSFE) and revoked the registrations of Mr Lai Nung Chi, Donald (Lai), as a securities dealer's representative and a commodity dealer's representative.
Following receipt of complaints by Lai's former clients for unauthorised diversion of funds from their accounts in mid-1998, the SFC conducted inquiries into both Lai's and MHSFE's conduct under section 56 of the Securities Ordinance (SO). A separate inquiry under section 36 of the Commodities Trading Ordinance (CTO) was also instigated into Lai's conduct.
At the end of the inquiries, the SFC found that Lai had at the material time:
a. caused the cash deposits of a client to be diverted to other clients' accounts maintained at MHSFE without the client's knowledge and consent;
b. changed the correspondence addresses of the client and his companies to prevent him from receiving monthly account statements issued by MHSFE; and
c. given the client copies of monthly account statements of his own making.
The SFC further found that MHSFE had not maintained an effective and appropriate internal control system at the material time which, had it been in place, would have rendered it more difficult for Lai to have committed the above acts.
In the light of the above findings, the SFC is of the view that:
1. Lai, by the above acts, had grossly abused the trust reposed in him by his clients and thereby breached the fundamental duty of a registered representative to act honestly and fairly in the best interests of his clients. Accordingly, Lai's fitness and properness to remain registered has been seriously impugned; and
2. MHSFE had breached a number of relevant conduct rules and internal control guidelines which require that, among other things, a registered person should put in place effective systems and procedures to protect its clients' assets and to ensure clients' assets are properly accounted for. Such breaches have impugned MHSFE's fitness and properness to remain registered in that there are doubts in its ability to perform the functions of a dealer efficiently and fairly.
As a result of the above, the SFC has decided to reprimand MHSFE and revoke Lai's registrations.
In deciding the penalty for MHSFE, the SFC has taken into account the following factors:
- immediately after Lai's acts had been discovered, MHSFE appointed a firm of independent auditors to review its internal control systems. It had also accepted many of the recommendations made by the auditors; and
- throughout the inquiry process, MHSFE had rendered full co-operation to SFC staff.
A SFC spokesman, commenting on the actions taken, said: "The SFC is committed to protecting the integrity of the Hong Kong market and takes a very serious view of improper conduct. It expects registered intermediaries to act honestly and fairly in the best interests of their clients as well as to maintain adequate and effective internal control systems which will minimise the exposure of their clients' assets to dishonest acts or omissions. The SFC would take all necessary regulatory actions to ensure that such standards are adhered to by registered intermediaries."
Page last updated 17 Mar 1999