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1. What steps can aggrieved investors take to recover their money?

Prosecution

 

The Hong Kong Monetary Authority (HKMA) has already referred the “minibonds” mis-selling cases to the Securities and Futures Commission (SFC), which is a Hong Kong Government regulatory body that can initiate disciplinary proceedings. The SFC will carry out an investigation and will prosecute the violators if it finds sufficient evidence of wrongdoing.

 

The penalties available to the SFC include public reprimands, fines and suspension or removal from the list of licensed or registered persons.

 

Section 107 of the SECURITIES AND FUTURES ORDINANCE, Chapter 571, Laws of Hong Kong provides:-

 

  • “(1) A person commits an offence if he makes any fraudulent misrepresentation or reckless misrepresentation for the purpose of inducing another person -
    (a) to enter into or offer to enter into -

    (i) an agreement to acquire, dispose of, subscribe for or underwrite securities; or

    (ii) a regulated investment agreement; or

    (b) to acquire an interest in or participate in, or offer to acquire an interest in or participate in, a collective investment scheme.
     

     

    (2) A person who commits an offence under subsection (1) is liable -

    (a) on conviction on indictment to a fine of $1000000 and to imprisonment for 7 years; or

    (b) on summary conviction to a fine at level 6 and to imprisonment for 6 months.
     

     

    (3) For the purposes of this section -

    (a) "fraudulent misrepresentation" means -

    (i) any statement which, at the time when it is made, is to the knowledge of its maker false, misleading or deceptive;

    (ii) any promise which, at the time when it is made, its maker has no intention of fulfilling, or is to the knowledge of its maker not capable of being fulfilled;

    (iii) any forecast which, at the time when it is made, is to the knowledge of its maker not justified on the facts then known to him; or

    (iv) any statement or forecast from which, at the time when it is made, its maker intentionally omits a material fact, with the result that -

    (A) in the case of the statement, the statement is rendered false, misleading or deceptive; or

    (B) in the case of the forecast, the forecast is rendered misleading or deceptive;
     

     

    (b) "reckless misrepresentation" means -

    (i) any statement which, at the time when it is made, is false, misleading or deceptive and is made recklessly;

    (ii) any promise which, at the time when it is made, is not capable of being fulfilled and is made recklessly;

    (iii) any forecast which, at the time when it is made, is not justified on the facts then known to its maker and is made recklessly; or

    (iv) any statement or forecast from which, at the time when it is made, its maker recklessly omits a material fact, with the result that -

    (A) in the case of the statement, the statement is rendered false, misleading or deceptive; or

    (B) in the case of the forecast, the forecast is rendered misleading or deceptive.”

Recently certain bank officers have been prosecuted under section 107.

 

However, even after successful prosecution of bank officers or financial institutions by the SFC, aggrieved investors are not automatically entitled to compensation for their loss. Additional separate Civil proceedings are also needed. That is, the investors must still sue the relevant party (or parties) in Court to recover all or part of their losses.

 

Damages for the Loss

 

As previously said, both the SFC and HKMA cannot order compensation be paid to the aggrieved investors. This generally requires a court order.

 

Section 108 of the Securities and Futures Ordinance lists out civil liability for inducing others to invest money in certain cases.

 

Compensation, then, is a matter for the Civil Courts.

 

Civil Court Proceedings

 

For claims of up to HK$75,000, aggrieved investors have to commence legal proceedings in the Small Claims Tribunal where no legal representation is allowed.

 

For claims over HK$75,000 up to HK$3,000,000, legal action must be commenced in the District Court. Claims above HK$3,000,000 must be presented in the Court of First Instance of the High Court of Hong Kong.

 

In both the District Court and the High Court, legal representation is allowed. Investors who have difficulty funding their litigation could approach the Legal Aid Department. Their financial position and the merits of their cases would be scrutinized before Legal Aid is granted.

 

However, investors may choose to represent themselves in court and act “in person”.

 

Alternative Dispute Resolution

 

As an alternative to bringing civil action in Court, the parties could attempt to resolve their disputes through other dispute resolution mechanisms. The most common means are mediation and arbitration.

 

The HKMA has made available mediation and arbitration services for helping resolve questions of compensation between investors and banks.

 

The service is provided by the Hong Kong International Arbitration Centre (HKIAC). The HKMA will pay the investor’s share of the fee for these services on behalf of (1) investors whose complaints in relation to the sale of the products have already been referred by the HKMA to the SFC for the SFC to decide whether or not to take any further action, or (2) investors whose complaint has already resulted in a finding against a relevant individual or executive officer by either the HKMA or the SFC.

 

Activation of the mediation process requires agreement from both the investor and the bank in question. Mediation is a form of voluntary dispute resolution which involves appointing a neutral mediator, who will bring the two parties together with the aim of settling claims in a speedy, confidential and amicable way, or of narrowing the issues in dispute. The mediator has no powers to decide or pass judgment on the dispute, but has training and experience in helping parties reach a negotiated settlement.

 

If, after mediation, the case remains unresolved, the HKMA suggests that the two parties consider agreeing to appoint an arbitrator with powers to decide the case on the basis of documentary evidence submitted by both parties. As with mediation, the initiation of arbitration requires the agreement of both parties.

 

For cases that the HKMA has not referred to the SFC for investigation, or cases that have not resulted in a finding against a relevant individual or executive officer by either the HKMA or the SFC, banks and customers could still try to settle these cases through mediation and/or by arbitration.

 

There are a number of organizations in Hong Kong which provide lists of mediators and arbitrators for the general public. The major providers are: the Hong Kong Bar Association, the Law Society of Hong Kong and the Hong Kong International Arbitration Centre (HKIAC).

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