A Hong Kong court has acquitted a company and its director on four counts of issuing advertisements to promote a collective investment scheme, including posting relevant information on its website, without authorisation by the Securities and Futures Commission (SFC) in contravention of section 103 of the Securities and Futures Ordinance (SFO). What does this mean for website marketing of private funds to professional investors in Hong Kong?
Under the SFO, it is an offence to issue a public advertisement for a fund without the SFC's authorisation. The SFO allows an exemption for funds that are, or are intended to be, disposed of only to professional investors. The term "advertisement" is widely drafted and can include information posted on a website.
The SFC has had success with prosecutions in this area in the past. In 2007, a company and its responsible officer were fined for unauthorised fund advertisements, which included posting information on its website.
For funds authorised for sale to the public in HK, the SFC has issued guidance on advertisements and the use of the internet: see the CIS Internet Guidance Note of April 2003 and the Advertising Guidelines of July 2008.
For private funds however, even though the SFO permits advertising to professional investors, there is no SFC guidance on what is acceptable marketing. Further, the SFC states in its product handbook that it "does not generally consider it appropriate to authorise any advertisement … in respect of [an] unauthorised product".
The lack of guidance, plus the SFC's previous prosecutions, has lead to a cautious approach from the industry, with website information on unauthorised funds generally restricted from public view by way of password protection.
The recent case
The SFC alleged that the defendants issued an advertisement on their corporate website promoting a collective investment scheme without the authorisation of the SFC. The defendants submitted that they intended to sell interests in the fund only to professional investors and so the advertisements did not require SFC authorisation under the statutory exemption. The SFC argued that the exemption did not permit advertisements that had not been authorised by the SFC to be issued to the public and that in this case there was no evidence that the interests in the fund had only been sold to professional investors. The magistrate accepted the defendants' argument and ruled also that the advertisements did not constitute invitations to the public to invest in the fund. In a press release issued on 21 March 2013, the SFC stated it will consider an appeal.
Is it now permissible for fund managers and promoters to place web-advertisements for unauthorised funds on publicly available websites so long as it is clearly stated that the product is only available to professional investors and so long as only enquiries from professional investors are pursued? Some further guidance from the SFC in the light of this decision on what is acceptable conduct in marketing private funds to institutions and other professional investors would be helpful. An SFC consultation with the industry would be very welcome.
Our article of March 2013 on authorised fund advertisements is available here: Tips for preparing Hong Kong product advertisements