Hontex Case

Slides for Hontex case for ACCT 4512 Securities Regulations

Transcript

1. Hontex Int. Holdings Co Ltd Prepared For ACCT4512 Securities Regulations
2. What is that company? • A textile company, which owns the brand MXN • Located in Fuqing(福清), Fujian Province • Listed on 24 December 2009 with KPMG as reporting accountants and Mega Capital as sponsor
3. The problem • On 30 March 2010, the SFC issued a direction to the Stock Exchange of Hong Kong to suspend trading in the shares of Hontex. • This is pretty rate. It was only the third such order given by SFC in six years. (via The Standard) • Hontex has a pretty good earning performance but a low PE ratio.
4. Hontex’s prospectus • Hontex is alleged to have disclosed materially false or misleading information in its prospectus dated 14 December 2009, which was likely to have induced investors to subscribe for the Hontex shares. The SFC alleges that Hontex’s financial position as outlined in its IPO prospectus has been materially overstated.
5. Misleading figures • Turnover overstated – RMB 380,934,125 (06), – RMB 708,894,820 (07) – RMB 974,733,321 (08) • Profit before tax overstated – RMB 102,935,289 (06) – RMB 185,001,887 (07) – RMB 298,286,785 (08) • Cash and cash equivalent balances • The number of franchise stores
6. SFC seeks to • Injunctions • Requiring Hontex to take steps to effect a return of subscribed capital to the public shareholders of the company
7. Court orders • The Court has made interim orders freezing up to $997.4 million. But the actual amount could be larger. • The case has been set down for trial starting on 4 June 2012.
8. Does court has jurisdiction? • Does the Court of First Instance has jurisdiction to determine whether a person has contravened the provisions of the SFO? • Arises because of the Hon Mr. Justice Harris’ decision in the case against Tiger Asia Management LLC. • SFC has also sought leave to appeal but Hon Mr. Justice Harris refused to grant such leave in this case. The SFC will seek leave from the Court of Appeal.