A Hong Kong court has for the first time convicted and imprisoned an individual for obstructing employees of the Securities and Futures Commission (SFC) in performance of their functions pursuant to the Securities and Futures Ordinance (Cap. 571) (SFO). Wong King Hoi was sentenced on 10 November 2022 to two weeks' imprisonment for obstructing SFC employees in the execution of a search warrant contrary to s.382 SFO following a prosecution brought by the SFC. Wong, who was convicted on 27 October 2022 after pleading guilty to the charge, was also ordered to pay the costs of the SFC's investigation. Unlike some previous decisions, it should be noted that the court did not impose a suspended jail sentence on Wong, who as it stands, will be required to serve the full term.
Section 382 SFO provides that any person who obstructs any specified person in the performance of a function under the SFO is liable on conviction on indictment to a fine of US$1,000,000 and to imprisonment for two years, or on summary conviction to a fine of HK$100,000. Specified persons include, amongst others, any employee of the SFC.
Wong was found to have delayed in giving the SFC search team access to his residence and to have attempted to dispose of certain objects and documents, in contravention of the search warrant obtained by the SFC relating to an ongoing investigation into suspected market manipulation of shares of a Hong Kong-listed company.
In 2021, the same charges were brought against another individual who was an alleged member of a syndicate suspected of operating ramp-and-dump scams on social media. The individual was summonsed for obstructing SFC employees in the execution of a search warrant and had pleaded not guilty on 11 November 2020 to the charge. After being released on bail, the individual failed to attend a subsequent hearing. The court was later informed that she had departed Hong Kong on 15 November 2020 and had not returned since.
The present conviction and arrest sends a "strong and clear message", according to Christopher Wilson, the SFC's Executive Director of Enforcement, that obstructing SFC officers in the performance of their duties represents a serious offence and a "significant impairment to the SFC's lawful duty".
The number of enforcement actions taken by the SFC has risen recently, with 220 investigations commenced and 28 criminal charges laid by the SFC as stated in the SFC Annual Report (2021-22). This number is up from 204 investigations and 29 criminal charges in 2020-21, and 197 investigations and 10 criminal charges laid in 2019-21.
The Wong King Hoi case is notable, however, as in 2022, there was only one other reported instance of an individual being prosecuted by the SFC, and subsequently convicted and sentenced to imprisonment for breaches of the SFO.
The SFC has also issued significant fines. In 2020, the SFC reprimanded and fined a wealth management company HK$2.71 billion for "serious regulatory failures" over bond offerings and in 2022, the SFC reprimanded and fined a financial services entity HK$348.25 million for "serious regulatory breaches" over client facilitation activities.
The SFC's increasingly active approach to enforcement may become even more pronounced in the near future.
In June 2022, the SFC published the Consultation Paper on Proposed Amendments to Enforcement-related Provisions of the Securities and Futures Ordinance, which proposes, a broadening of the scope of its enforcement powers. Amongst other changes, amendments to s.213 SFO would allow the SFC to apply for an injunction or other orders under s.213(2) SFO where the SFC has exercised any of its powers under ss.194(1), 194(2), 196(1) or 196(2) SFO.
Such orders could include investor-compensation orders under which IPO sponsors could be ordered by a court to compensate investors in situations where they have breached the SFC's codes and guidelines. The deadline for responses closed on 12 August 2022 and next steps are awaited. Christopher Wilson has yet to announce formally the SFC's enforcement priorities under his watch, which the financial and legal community await with interest.
The proposed amendments, whilst having no direct bearing on s.382, do represent a further increase in intensity in the SFC's enforcement approach. In view of the recent conviction under s.382, individuals and financial institutions alike which are subject to the SFC's jurisdiction should be mindful of the need to comply with the SFO, and to keep out of the way of SFC employees carrying out their duties under the Ordinance.