On this issue, Eddie should refrain from influencing Jacob to subscribe for the shares of Small World Corporation or, alternatively, disclose to Jacob’s clients the material interest of the company in this transaction.  However, Eddie errs by aiming only to evade the final responsibility of his company in buying the portion of stocks which cannot be absorbed by the market.  He has thus violated the *Codes of Conduct.   On the other hand, Jacob should not act in accordance with Eddie’s instruction unless the subscription is in line with the investment objectives of his clients.  He has breached the Fund Manager Code of Conduct in not performing his fiduciary duty.

*Remarks: Codes of Conduct refer to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, the Code of Conduct for Corporate Finance Adviser and the Fund Manager Code of Conduct.

Benny occupies a position which has access to the sensitive information on the merger plan for Interlock and Happy Diet.   His subsequent action in abusing the information to deal in their stocks for personal gain has not only violated the

*Codes of Conduct but also the insider dealing provisions of the Securities and Futures Ordinance.

*Remarks: Codes of Conduct refer to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, the Code of Conduct for Corporate Finance Adviser and the Fund Manager Code of Conduct.

Financial Projection for Listing

Surely Patrick should handle the financial estimates and anticipated sales growth meticulously.  He should document his bases of assumptions and agree those with the Managing Director.  All these would be reviewed by the merchant bank which sponsored the listing as well as the reporting accountant, and the eventual delivery of the forecasts would be a matter of public and regulatory scrutiny once the company got listed.  Although the Managing Director did not bother which accounting method to use, Patrick should ensure that the accounting method followed all applicable Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards and interpretations issued by the Hong Kong Institute of Certified Public Accountants.

Managing Director's Request for Manipulation of Management Accounting Data

Patrick should explain to the Managing Director that, first of all, a wilful act of manipulation of accounting data is a criminal offence.  Secondly, accounting information presented to banks would most likely be audited.  Once the banks realised that there were significant discrepancies between management accounting data previously presented and the audited accounting data, they would ask for explanations which would well call into question the credibility of the company.  In the worst case, banks could withdraw financial support to the company.

Request for a Cheque by the Assistant to General Manager

It would be a breach of the Section 9(3) of the Prevention of Bribery Ordinance (POBO) if the General Manger used false document e.g. false reimbursement records, to deceive his company. Furthermore, if the cheque payment was offered by the General Manager to the Mr Wong as an advantage in disguise to induce or reward for latter’s assistance in granting credit facilities to the company, both the General Manager and Mr Wong would breach Section 9 of the POBO.

Patrick should report the matter to the Managing Director and explain the legal consequences of being involved in such an act.  Patrick should take the opportunity to urge the Managing Director to issue a set of code of conduct to strengthen internal control of the company. He should report to the ICAC if corruption was suspected.

Offering of ‘Valuable Information'

The valuable information provided by Benny is likely to be insider information which, if used to deal in listed securities, could have severe legal consequences.  Patrick should make it clear to Benny that his evaluation of the banks was done in an objective manner and there would be no need for Benny to reciprocate with any 'gift' as a result of OPQ bank being appointed.  If Patrick's dinner with Benny is no more than a social entertainment, Patrick does not need to avoid it.  If by accident Patrick had heard of the valuable information from Benny but he did not deal, counsel nor procure other persons to deal in the securities, he would not breach the insider dealing provisions under the Securities and Futures Ordinance.

Donald might breach Section 83 of the Banking Ordinance for approving loan to his wife. He might also violate the Code of Conduct[1] of his bank for granting credits or loans to himself or to members of his immediate family including spouse or to companies in which he or his immediate family is interested. Before processing the loan application submitted by his wife, Donald should observe the specific guidelines which his bank adopts in relation to transactions with connected parties and declare his relationship with the applicant to his bank.

[1] According to HKMA’s Supervisory Policy Manual CG-3, each authorized institute (bank) should develop its own Code of Conduct containing certain minimum conduct requirements which include “no member of staff should grant credit to himself, his relatives or companies in which he or his relatives have a personal interest.”

Aaron occupied a position from which he had access to sensitive information about his client's merger plan. He might commit an offence of insider dealing under the Securities and Futures Ordinance and might also breach the Code of Conduct^[1] of the bank by leaking client’s information to an outsider without his consent and abusing the information to deal in the stocks for personal gain. Aaron should not deal, whether directly or indirectly, in the shares or other securities of any company listed on The Stock Exchange of Hong Kong Limited when he possessed non-public inside information obtained as a result of his employment.

^[1] According to HKMA’s Supervisory Policy Manual CG-3, each authorized institute (bank) should develop its own Code of Conduct containing certain minimum conduct requirements which include “no member of staff should deal in the shares or other securities of any listed company when possessing privileged or price-sensitive information that is not generally known to the shareholders of that company and to the public. Staff should not disclose such information to any third party.”

Jimmy violated the Codes of Conduct[1] issued by Securities and Futures Commission because he preferentially allocated the shares to Amy, thereby giving favour to her and putting other clients at a disadvantage.  He also breached Section 9 of the Prevention of Bribery Ordinance (POBO) by soliciting and accepting an advantage, i.e. 10,000 shares as a reward for allocating the Blue Water stocks to Amy despite the short supply. Although Jimmy asked Amy to place the stocks in the account of his wife, he was still guilty of a corruption offence. Under Section 9 of the POBO, a person is considered to have accepted an advantage even though another person acting on his behalf receives the advantage.

[1] Codes of Conduct refer to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, the Code of Conduct for Corporate Finance Adviser and the Fund Manager Code of Conduct.