SFC reprimands and fines Tung Tai Securities Company Limited HK$900,000 for failure to safeguard client assets

The Securities and Futures Commission (SFC) has reprimanded and fined Tung Tai Securities Company Limited (Tung Tai) HK$900,000 for failures relating to unauthorised sales of client securities and transfers of client funds (Note 1).

The SFC’s investigation found that between 6 September 2019 and 18 February 2020, Tung Tai, acting on instructions from a bogus email address similar to that of an overseas client, sold shares in the client’s account and transferred the sale proceeds totalling US$3,301,740 to three overseas bank accounts that were not designated by the client. Apart from the incorrect email address, there were other signs of potential irregularities, including telegraphic transfer rejections by multiple banks, but Tung Tai did not act on these red flags and continued to process the fund transfers (Note 2).

The SFC found that Tung Tai failed to ensure that client assets were adequately safeguarded. Tung Tai also failed to establish effective internal control procedures to protect client assets from theft, fraud and other acts of misappropriation.

In deciding the disciplinary sanctions against Tung Tai, the SFC has taken into account that:

• Tung Tai’s failures to put in place adequate internal controls to safeguard client assets are serious, as they could expose clients to risk of substantial loss arising from theft, fraud and other acts of misappropriation;

• Tung Tai has taken remedial measures to enhance order placing and trading execution procedures for the client to avoid similar incidents in the future;

• Tung Tai has made compensation to the client;

• Tung Tai engaged a firm of independent reviewers to review its internal controls in respect of safeguarding of client assets and cooperated with the SFC in resolving the SFC’s concerns; and

• Tung Tai has an otherwise clean disciplinary record.

End

Notes:

1. Tung Tai is licensed under the Securities and Futures Ordinance to carry on Type 1 (dealing in securities) and Type 4 (advising on securities) regulated activities.

2. Tung Tai transferred the sale proceeds of US$3,301,740 from the client’s account to three bank accounts in the United States through four telegraphic transfers (TT) pursuant to instructions from the bogus email address. Tung Tai processed such fund transfers without making enquiries with the client even though in the preceding three months, two different banks in Mexico and Canada had rejected several TTs it processed based on instructions from the bogus email address. In addition, the beneficiary addresses for the TTs provided in the false instructions were different from that of the client as provided in the account opening documents.