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Criminal liability will furthermore,subject to the available defences,attach to any person who authorisedthe issue, circulation or distributionof the prospectus. 3Nevertheless, it is neither clear noruniversally accepted that sponsorsfall under any of these categories.An absence of case law hasfurther clouded this question. TheConsultation therefore proposedthat the relevant statutory provisionsbe amended to put the issuebeyond doubt: that sponsor firmshave civil and criminal liabilityfor untrue statements made inprospectuses.Results of the ConsultationPerhaps not surprisingly, thelargest group reported to respondfavourably to the Consultationwas buy-side investors. They seekgreater comfort that sponsors areensuring high market quality whencompanies list on the Hong KongStock Exchange.On the other hand, sponsor firmswere keen to highlight that otherprovisions exist granting remediesfor prospectus failures. 4 Sponsorswere also of the view that theywould effectively have to guaranteethat prospectuses contain onlytruthful information, and that thisburden would be unreasonablyonerous.Despite this resistance, the SFChas decided to press ahead withits proposals. It has responded tosponsors’ objections by remindingthem of their non-statutoryobligation to act in the best interestsof market integrity. 5A tempered outcome?The SFC’s recommendations aremoderated somewhat by two statedassurances to sponsors.The first concerns the burden ofproof for criminal liability underthe current regime. As it stands,liability for untrue statements canbe established by the prosecutionproving that a prospectus containsan untrue statement. It is up to thedefendant to establish that he hadreasonable grounds to believe thatan untrue statement was true (andthat he believed so at the time ofthe prospectus’ issue), or that thestatement was immaterial.The SFC recognises that thecurrent regime therefore imposescriminal liability for what is, in effect,negligence; noticeably more onerousthan the rules in similar markets.In response, it has recommendedthat these provisions be amendedto shift the burden of proof to theprosecution, that is, of having toprove:1. That a person knew that, orwas reckless as to, whether astatement in the prospectus wasuntrue.2. The untrue statement wasmaterially adverse from aninvestor’s perspective.This proposed amendment wouldalso bring the burden of proof inline with other offences under theSecurities and Futures Ordinance.The SFC further reassuredrespondents to the Consultation thatcriminal liability would in generalapply directly to a sponsor firm.Individuals at sponsor firms wouldonly attract liability where evidenceshows that they had colluded in themaking of the untrue statement, orwhere a director or other officer hadparticipated in or consented to thecommission of the offence.The futureIt is understandable that, in thecontext of the tough global marketfor public listings, the SFC is eagerto portray the Hong Kong StockExchange as a quality environmentfor investment. On the basis of thoseviews canvassed by the Consultation,“[the SFC]… hasresponded tosponsors’ objectionsby reminding themof their non-statutoryobligation to act inthe best interests ofmarket integrity.”3. Sections 40A and 342F CO. A person is liable for a fine of up to HK$700,000 and imprisonment of up to three years for conviction on indictment, or a fine of HK$150,000 and imprisonmentof up to 12 months upon summary conviction.4. E.g. Sections 107, 108, 277 and 298 Cap 571 Securities and Futures Ordinance.5. General Principle 1, Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.02 Corporate


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