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UBS Group, Standard Chartered to Settle IPO Misconduct Case

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UBS Group AG (UBS - Free Report) and Standard Chartered PLC (SCBFF - Free Report) have agreed to settle a lawsuit related to the alleged mishandling of a 2009 IPO in Hong Kong. This was first reported by Reuters citing a counsel for Hong Kong’s financial regulator, the Securities and Futures Commission (“SFC”).

Notably, details of the settlement and the alleged misconduct have not been disclosed.

Nonetheless, according to people with knowledge of the matter, the case pertained to listing of a now non-operational company— Chinese Forestry — in 2009. The firm had raised $216 million in its IPO but share trading was suspended after its auditor found several irregularities. The firm was subsequently liquidated.

Following this, last year, the SFC proposed a fine of HK$119 million ($15.16 million) on UBS Group and the suspension sponsor license for 18 months. Now, the company isplanning to appeal against the ban on leading IPOs in Hong Kong.

Hong Kong IPOs require at least one sponsor bank, which generally takes a lead in running the IPO and also collects a bigger portion of fees compared to banks listed only as bookrunners. Sponsor banks are required to conduct due diligence of the company to be listed and are responsible for guarantying potential investors that its IPO prospectus is correct.

Hong Kong is a lucrative market for IPOs, with approximately $36.3 billion raised in the city last year, per the Refinitiv data. Notably, UBS Group has a significant market share in the city’s IPOs but this declined as the threat of suspension loomed.

UBS Group’s case under appeal is among the series of similar actions undertaken by the SFC to tighten oversight. In 2018, the regulator fined Citigroup (C - Free Report) and China Construction Bank International, an investment bank wholly owned by China Construction Bank Corporation , over similar allegations.

Currently, UBS Group carries a Zacks Rank #3 (Hold) while Standard Chartered has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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