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The Hong Kong Securities and Futures Commission (SFC) has just announced that it commenced proceedings in the Market Misconduct Tribunal (MMT) against Fujikon Industrial Holdings Limited (Fujikon) for failing to disclose inside information as soon as reasonably practicable on the discontinuance of headphone production for one of the company’s top customers.
The SFC has also commenced proceedings in the MMT against Mr Yeung Chi Hung, the Chairman, Chief Executive Officer and Executive Director of Fujikon, and Ms Chow Lai Fung, the Chief Financial Officer, Company Secretary and Executive Director of Fujikon, for their reckless or negligent conduct causing Fujikon’s alleged breach of the requirements under the statutory corporate disclosure regime. The SFC also alleges that Yeung and Chow failed to take all reasonable measures to ensure that proper safeguards exist to prevent the alleged breach of the regime.
The SFC found that on 12 April 2014, a subsidiary of Fujikon was notified by its top customer that a particular headphone manufactured for that customer would be discontinued. The headphone, the only product that Fujikon manufactured for that customer, generated revenue of approximately $157 million and $210 million for the years ended 31 March 2013 and 31 March 2014, respectively – approximately 10 per cent and 14 per cent of the revenue of Fujikon and its subsidiaries in those two years was attributable to revenue derived from the manufacture of the headphone.
The SFC alleges that the discontinuance of the headphone production was specific information relating to Fujikon, price sensitive and not generally known to those who were accustomed to deal in Fujikon shares at the material time. The information would likely have materially affected Fujikon’s share price had it been known to those investors.
The SFC further alleges that Yeung and Chow, who were senior management of Fujikon at the material time, became aware of the discontinuance of the headphone production on or about 12 and 16 April 2014. However, they failed to take steps to cause the Board of Fujikon to disclose the inside information to the public as soon as reasonably practicable and Fujikon only issued an announcement about the discontinuance of headphone production on 6 June 2014 – a delay of more than seven weeks in disclosing the matter to the public.