Protection of investors and structured products
Actions may be taken
The Hong Kong Monetary Authority (HKMA) has already referred the “minibonds” mis-selling cases to the Securities and Futures Commission (SFC), which is a Hong Kong Government regulatory body that can initiate disciplinary proceedings. The SFC will carry out an investigation and will prosecute the violators if it finds sufficient evidence of wrongdoing.
The penalties available to the SFC include public reprimands, fines and suspension or removal from the list of licensed or registered persons.
Section 107 of the Securities and Futures Ordinance, Chapter 571, sets out the offence to fraudulently or recklessly induce others to invest money. Any person who commits this offence is liable to a fine of $1,000,000 and to imprisonment for 7 years on conviction on indictment; or on summary conviction, to a fine at level 6 and to imprisonment for 6 months.
Recently certain bank officers have been prosecuted under section 107. However, even after successful prosecution of bank officers or financial institutions by the SFC, aggrieved investors are not automatically entitled to compensation for their loss. Additional separate civil proceedings are also needed. That is, the investors must still sue the relevant party (or parties) in Court to recover all or part of their losses.
Both the SFC and HKMA cannot order compensation be paid to the aggrieved investors. This generally requires a court order.
Section 108 of the Securities and Futures Ordinance lists out civil liability for inducing others to invest money in certain cases.
An investor could pursue legal action in tort [a wrong that involves a breach of a duty of care owed to someone else] and/or under contract law, as the facts suit. He could sue for damages in tort, or claim for damages for breach of contract and/or could also ask the court to rescind the contract so that he can get back what he paid.
The bank or financial institution would be pursued as the principal of the particular bank officer or broker in question who sold the “minibonds”. It would be difficult to pursue legal action against the issuers since the investor would normally have no direct dealings with them. Moreover, the issuers of the products are most likely companies registered overseas with limited liability and limited financial resources. It would be fruitless to engage in legal action against the issuers directly.
For claims of up to HK$75,000, aggrieved investors have to commence legal proceedings in the Small Claims Tribunal.
For claims over HK$75,000 up to HK$3,000,000, legal action must be commenced in the District Court. Claims above HK$3,000,000 must be presented in the Court of First Instance of the High Court of Hong Kong.
Investors who have difficulty funding their litigation could approach the Legal Aid Department. Their financial position and the merits of their cases would be scrutinized before Legal Aid is granted.
Alternative Dispute Resolution
As an alternative to bringing civil action in Court, the parties could attempt to resolve their disputes through other dispute resolution mechanisms. The most common means are mediation and arbitration.