Secret Accounts

Perhaps owing to the stock market boom in recent two years, there have been many SFC licensed representative engaged in personal trading via "secret accounts", i.e. dealing accounts not maintained in their own names. If such misconduct is done by a responsible officer, then the penalty is definitely more severe.

SFC recently banned Mr Yeung Hon Fat from re-entering the industry for life for operating secret accounts while acting as a responsible officer of KGI Futures (Hong Kong) Ltd. The SFC investigation found that in late 2005, Yeung:

• concealed from KGI his personal options trading through an account under his brother-in-law's name, resulting in a margin deficit of over $13m;
• conducted unauthorized trading in two other clients' accounts, resulting in a total margin deficit of over $1.5m;
• coached one of these two clients to assume responsibility for Yeung's unauthorized trades and to lie to KGI about these unauthorized trades in order for Yeung to evade his own liability; and
• coaxed a subordinate to become the nominal account executive of these clients.

Obviously Yeung's behaviors are dishonest and deceptive. But the comment made by Mark Steward (SFC's Executive Director of Enforcement) that Yeung's conduct is viewed as a form of market misconduct is problematic. Prima facie I don't think Yeung has committed any market misconduct (e.g. insider dealing, false trading, etc.) as defined under SFO.