Hong Kong regulator sues Standard Chartered, UBS over China Forestry IPO

[HONG KONG] Hong Kong's securities regulator has filed a lawsuit against Standard Chartered Plc, UBS Group AG and audit firm KPMG LLP over an initial public offering by China Forestry Holdings Co in 2009.

The Securities and Futures Commission's claim relates to alleged "market misconduct" connected to China Forestry's IPO prospectus, and the company's financial statements for 2009 and for the first half of 2010, according to documents filed with Hong Kong's High Court on Jan. 16.

The two banks were joint sponsors of China Forestry Holdings Co's US$217 million first-time share sale in November 2009, while KPMG was its auditor, data compiled by Bloomberg show.

Standard Chartered and UBS had previously disclosed potential regulatory action for their work on unspecified IPOs in Hong Kong. Regulators in the city have been tightening oversight of the banks that underwrite initial share sales after some deals saddled investors with losses in recent years.

Hong Kong was the second-biggest market for new listings last year with US$25.2 billion of deals, trailing only the US, data compiled by Bloomberg show. Spokesmen for Standard Chartered, UBS, KPMG and the SFC declined to comment.

The SFC also sued China Forestry, its former chairman Li Kwok Cheong and former chief executive officer Li Han Chun, the court documents show.

China Forestry has been suspended from trading in Hong Kong since January 2011 and was in the process of delisting after financial irregularities were discovered. Liquidators were appointed for the logging company in June 2015 by a court in the Cayman Islands, where it is incorporated.

The liquidators last April filed a writ of summons against Standard Chartered, UBS and other advisers on the IPO, alleging offenses including breach of contract and misrepresentation.

In October 2013, the Hong Kong securities regulator introduced a new system under which banks that sign off on listings, known as sponsors, will be held accountable if offer documents contain untrue statements. It has also warned that bankers on such deals can be held criminally liable.

BLOOMBERG