By Julie Steinberg 

This article is being republished as part of our daily reproduction of articles that also appeared in the U.S. print edition of The Wall Street Journal (March 15, 2019).

Hong Kong's market regulator banned UBS Group AG from the most senior role on initial public offerings for a year, fining the Swiss bank and three rivals 786.7 million Hong Kong dollars (US$100.2 million) in total for cutting corners on IPOs.

On Thursday, the Securities and Futures Commission fined UBS HK$375 million for due diligence failures in its role overseeing the 2009 listing of China Forestry Holdings Co., the 2014 debut of Tianhe Chemicals Group Ltd. and another IPO that wasn't specified. China Forestry was later liquidated, while Tianhe's shares have been suspended from trading since March 2015.

Units of Morgan Stanley and Bank of America Corp. were fined HK$224 million and HK$128 million, respectively, for their work on the Tianhe IPO. Standard Chartered PLC was fined HK$59.7 million over China Forestry.

UBS was suspended from acting as a sponsor for one year on IPOs in the city. In Hong Kong, lead banks on an IPO are known as sponsors. They conduct due diligence, shepherd companies through a listing and can be liable for misleading statements in prospectuses. Sponsor fees are often small, but banks have a better chance at winning underwriting roles if they become sponsors first.

Among other things, the regulator said UBS and Standard Chartered failed to verify China Forestry's forests existed. It also said UBS and the two U.S. banks didn't follow up after an interview at Tianhe's offices with a purported representative of its biggest customer, who refused to confirm his identity and stormed out of the meeting, according to documents released by the regulator Thursday.

Under enforcement head Thomas Atkinson, the regulator has dug into what it has called substandard work by 15 financial firms on IPOs. Last year, an Asian unit of Citigroup Inc. was fined HK$57 million for due diligence lapses on a 2009 listing.

The regulator has tried to both ensure the integrity of the markets while still attracting listings to the city and top global banks to handle them. Arranging IPOs has long been a lucrative business for banks in the city, and some industry participants say heavy fines could encourage firms to look to other markets. Bankers say conducting due diligence in China is difficult and that they often have no recourse if companies deliberately mislead them.

The fines, which were the largest in total ever imposed for sponsorship failures, were partly determined by the banks' fees and other factors. They are a culmination of years of investigation by the securities regulator. The Wall Street Journal first reported the Tianhe investigation in 2017.

A UBS spokesman said it took note of the findings and was pleased to have resolved these "legacy issues." Spokesmen for Bank of America and Morgan Stanley declined to comment, while a Standard Chartered spokesman didn't return a request for comment.

Write to Julie Steinberg at


(END) Dow Jones Newswires

March 15, 2019 02:47 ET (06:47 GMT)

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