HONG KONG — Bankers in Hong Kong, the world’s biggest market for initial public offerings, could face as much as two years in prison and fines of more than $100,000 if false or misleading information is included in the listing documents filed by companies they bring to market, according to a proposal by a Hong Kong regulator.
On Wednesday, the Hong Kong Securities and Futures Commission announced the proposed penalties as part of a regulatory overhaul that follows a series of accounting failures, fraud and other corporate scandals here in recent years, mainly involving companies from mainland China.
The plan — which includes prison time and fines of as much as 1 million Hong Kong dollars, or $129,000 — represent the first time that sponsors of a listing have been made both civilly and criminally liable for the accuracy of I.P.O. prospectus, which describes a company’s business activities and is distributed to potential investors before a firm can sell shares to the public. The proposals will undergo a two-month public consultation before additional action is taken.
“Sponsors play a lead role in coordinating an I.P.O.,” said Ashley Alder, the chief executive at the securities commission. “Our proposals are aimed at encouraging best practices across all sponsor firms, whom investors rely on as key gatekeepers of market quality.”
Hundreds of mainland Chinese firms have listed on the Hong Kong stock market as they seek to raise money offshore in a freely exchangeable currency; Hong Kong dollars are not subject to the same restrictions as the Chinese currency, the renminbi.
As a result, Hong Kong has ranked as the world’s No. 1 market for I.P.O.’s for three years in a row, with 88 listings last year raising a total of 271 billion Hong Kong dollars, according to the securities commission.
The Chinese I.P.O. bonanza has meant a windfall in fees for the global and local investment banks that sponsor, underwrite or otherwise participate in new stock market listings. Eight of the top 10 underwriters of Hong Kong I.P.O.’s last year were Wall Street banks, with Goldman Sachs occupying the No. 1 position, according to Bloomberg data; two Chinese banks also ranked.
But a spate of accounting and related scandals in recent years has burned some investors in the Hong Kong markets and prompted increased calls for better disclosure, tougher punishments for rule breakers and more accountability among the bankers, auditors and lawyers associated with firms that are found to have engaged in fraud.
Last month, the Hong Kong regulator revoked the license of a Taiwanese-owned brokerage, Mega Capital, for its role in the 2009 stock market listing of Hontex, an apparel retailer based in mainland China. The Securities and Futures Commission had accused Hontex of lying in its listing prospectus and overstating its financial position.