What You Need to Know About the Company That Lost Nearly $19 Billion in 24 Minutes
June 19, 2015 — 12:01 AM SGT
It’s been nearly one month since Hanergy Thin Film Power Group Ltd.’s shares were suspended May 20, and there is no indication when they might resume. Much depends on the Hong Kong Securities & Futures Commission, which issued a rare statement about an ongoing investigation into the company’s affairs on May 28. Since then the company, which makes equipment used to manufacture solar panels, has not issued any statements concerning the reasons for the suspension. Here are some questions and answers on the scope and challenges of the SFC probe into Hanergy’s affairs.
1.) How Long Will the Investigation Last?
While the SFC completed 70 percent of its investigations within seven months during the year ending March, some probes have lasted significantly longer.One of the SFC’s most complex investigations into market misconduct involved Greencool Technology Holdings Ltd. Trading was halted in August 2005 and the company’s shares were de-listed two years later, yet proceedings against its former chairman Gu Chujun and nine senior executives for distributing false financial information did not begin until June 2014.
2.) What is the Possible Scope of an SFC Investigation?
Investigators may be looking into any of the five areas of enforcement under the SFC’s charter: market manipulation, insider dealing, intermediary misconduct, corporate mis-governance and unlicensed dealing. The SFC has declined to speak about the specifics of the Hanergy case.
Hanergy released a statement through the Hong Kong stock exchange on March 25 denying any misconduct or manipulation of the shares by Chairman Li Hejun.
3.) How Long Will the Suspension Last?
It could be months or even years. Of the 19 companies currently under SFC investigation with identified irregularities, 10 have been suspended for longer than two years.
4.) What Information has Hanergy Released Since the Halt?
It has issued a trickle of statements to the Hong Kong stock exchange, including the June 5 resignation of its company secretary after less than six months on the job, and the cancellation of service and equipment deal worth $585 million to its parent and largest customer, Hanergy Group.
Hanergy Chairman Li told Xinhua News Agency in an interview days after the stock halt that reports of a regulatory probe were “purely rumor.” The SFC issued a statement about the probe after the Xinhua story ran.
Li also told Xinhua that the company was putting on extra shifts at its plants. “We’re in big production. It’s very, very, very good. Hanergy is in the best shape since it started,” he said.
Hanergy has declined repeated requests for comments.
5.) Can Trading Take Place off Market?
Yes. Since Hanergy was suspended on May 20, more than 26 billion shares were transferred between brokerages, according to the Hong Kong exchange’s clearing system. It is not known what percentage of these shares involved closing short positions. As the clearing system in Hong Kong only records the net changes in shares held by brokerages at the end of each day it does not capture trades by individuals within each firm.
6.) Is the SFC Likely to Seek an Asset Freeze?
If the SFC believes company executives have defrauded investors by disseminating false information, it may seek court orders to freeze the assets of executives responsible in order to set aside funds to protect investors.
As Hong Kong does not have a legal mechanism for class action suits it is up to the SFC to determine the amount and who should be compensated.
In previous cases, the SFC has applied to freeze assets in alleged insider dealing and market manipulation cases. For example, in August 2009 the Hong Kong High Court ordered the freezing of HK$1.7 billion ($219 million) of assets belonging to Gome Electrical Appliances Holding Ltd. founder Huang Guangyu and his wife Lisa Du Juan.
Huang was sentenced to 14 years for bribery and insider trading by a Beijing court in 2010.
7.) Will China’s Watchdog be Involved?
The SFC’s biggest challenge is the forensic work of poring through hundreds of thousands of pages of trading records. The task is compounded by the fact that Hanergy was one of the most heavily traded stocks by mainland investors under the Hong Kong-Shanghai Connect program, so the SFC will require assistance from the China Securities Regulatory Commission to access records of those trades executed through local brokers. Hong Kong’s watchdog has a memorandum of understanding with the CSRC to share information and cooperate in cross-border investigations.
The CSRC did not respond to written requests for comment about its involvement in the Hanergy investigation by the SFC.
8.) Could Anyone be Jailed?
No charges have been filed and the SFC probe may not find any evidence of wrongdoing. There are precedents where SFC probes have lead to criminal convictions and prison terms. Du Jun, a former managing director of Morgan Stanley Asia, was sentenced to seven years in prison in 2009 for insider trading.
In 2009, four people were jailed for between 26 and 30 months after being found guilty of market manipulation in shares of Asia Standard Hotel Group Ltd.. Of the 14 convictions in cases by the SFC in the year ending March, only one resulted in a prison sentence, one month for false trading.