On August 28, the Hong Kong Securities and Futures Commission (SFC) revoked the license of Anshan Capital Limited (Anshan Capital) for facilitating fund misappropriation and engaging in other dishonest activities related to fund management. The SFC also imposed a lifetime ban on Anshan Capital's former senior executives Wu Yu and Wu Shuzheng from conducting all regulated activities.
The SFC stated that from October 6, 2017 to September 29, 2021, Anshan Capital served as manager of a standalone investment portfolio (the sub-fund) under a fund incorporated in the Cayman Islands. The SFC's investigation revealed that Wu Yu, along with his connected persons and entities, orchestrated a scheme to misappropriate approximately $154 million belonging to a client of Nerico Brothers Limited (NBL) through the sub-fund. Anshan Capital knowingly facilitated this scheme.
Specifically, under this scheme, NBL transferred the client's funds to the sub-fund between January and August 2021, claiming they were for purchasing "liquidity provider units" from the sub-fund. Despite the sub-fund neither issuing nor holding any such units, Anshan Capital accepted the funds transferred by NBL. Subsequently, Anshan Capital instructed the sub-fund to transfer most of the proceeds to a company owned by Wu Yu, with the remaining proceeds largely used for the sub-fund's own purposes.
**Providing False Information and Forging Documents about the Sub-fund**
During its tenure as fund manager, Anshan Capital represented to the sub-fund's auditors and administrators that NBL was one of the brokers used by the sub-fund for trading activities, and that most of the sub-fund's cash assets were held in an account opened with NBL (the NBL Account). Anshan Capital also claimed that Wu Yu had subscribed for shares in the sub-fund three times through a company he controlled, involving a total of $297 million, with subscription payments transferred to the purported NBL account.
However, the SFC's investigation showed that the sub-fund was not a client of NBL and did not hold any account with NBL. Under these circumstances, the cash assets the sub-fund claimed to hold with NBL did not exist, and its cash position was inflated between November 2019 and May 2021 due to the purported balance of up to $451 million in the NBL account.
Furthermore, between November 2019 and September 2021, Anshan Capital provided false information and forged documents regarding the sub-fund's value and financial position, including forged audit reports, to mislead investors and potential investors.
**Senior Management Responsibility**
The SFC determined that Anshan Capital's misconduct could be directly attributed to the actions of Wu Yu and Wu Shuzheng. Wu Yu was the mastermind and orchestrator of these schemes. He personally profited from the misappropriated NBL client funds and the inflated value of the sub-fund. Wu Shuzheng, on the other hand, conspired with Wu Yu in these schemes by handling the misappropriated funds from NBL, authorizing the dissipation of misappropriated funds to Wu Yu's company, and playing an active role in providing false information and forged documents to the sub-fund's auditors and administrators.
Overall, their conduct was extremely dishonest and fell far below the standards expected of senior management of licensed corporations.
In deciding to impose the above disciplinary sanctions on Anshan Capital, Wu Yu, and Wu Shuzheng, the SFC considered that: their conduct was extremely egregious and serious, undermining investor and public confidence in market integrity; their conduct caused significant losses to NBL's client; and each of them had no previous disciplinary record.