Pacific Sun Advisors Limited (Pacific Sun) and its director have been convicted on four charges of issuing advertisements to promote a collective investment scheme without the authorisation of the Securities and Futures Commission (SFC) in contravention of section 103(1)(b) of the Securities and Futures Ordinance (SFO). Pacific Sun was fined HK$20,000, and its director was sentenced to four week’s imprisonment (suspended for 12 months).
Pacific Sun and its director were initially acquitted in the Magistrates’ Courts on the basis that the materials sent out merely contained invitations to seek further information about the collective investment scheme and did not constitute an advertisement. Furthermore, even if they did constitute an advertisement, the exemption under section 103(3)(k) of the SFO would apply to relieve the defendants of liability, as the advertisement was intended for professional investors only. However, following a successful appeal by the SFC in the Court of First Instance in January 2014, the acquittals were set aside, and the case was remitted back to the magistrate for reconsideration: see our our February Newsletter article.
Upon reconsideration, the magistrate found that the advertisement did infringe section 103(1)(b), and for the purposes of determining liability under that section, disclaimers should be given little weight. Further, in determining whether the exemption under section 103(1)(k) applies, one can only have regard to the contents of the advertisement. The fact that the defendants only ever intended to issue the advertisement to professional investors, and had a screening mechanism in place to ensure that all investors were professional investors, was irrelevant. In order to fall within the exemption, it must be clear from the face of the advertisement that it was intended for professional investors only.