SFC suspends Stephen Cho Yu Kwan, reprimands and fines Ju You Li

2013-11-25

The Securities and Futures Commission (SFC) has suspended Mr Stephen Cho Yu Kwan for three years from 22 November 2013 to 21 November 2016 and reprimanded his wife Ms Ju You Li and fined her $100,000 (Notes 1 & 2).

An SFC investigation found that, between August and December 2010, there were a number of suspicious fund transfers of significant amounts to and from the personal bank accounts of Cho and Ju, who were licensed representatives of different securities firms. The SFC found that these transfers involved funds that had been advanced to them by money changers in both Hong Kong and the Mainland on behalf of Mainland clients. Money for Cho’s clients was routed through Ju’s personal bank account to the securities accounts of Cho’s clients and funds for Ju’s clients were transferred to the securities accounts of Ju’s clients via Cho’s personal bank account.

The effect of the arrangement was to create an additional layer of the fund transfer process disguising the true source of the funds that were being used and prejudicing their employers’ obligations to know the origin of their clients’ money, both of which constitute important information in the prevention and identification of money laundering activities.

According to Cho and Ju, the funds deposited to their accounts came from their Mainland-based clients. However, they had no actual knowledge to confirm their belief. Nor did they verify whether the money received in Cho’s account was provided by the money changers and whether the relevant clients had transferred the equivalent amount of Renminbi to the money changers’ accounts in the Mainland.

Cho admitted that he received a service fee from some of these clients for the services he rendered. Cho also admitted that on some occasions the money received from the money changers might be kept in his personal bank account temporarily, if the clients’ securities trading accounts at his employer had not yet been opened.

Both Cho and Ju knew that as licensed representatives and account executives, they should not be personally involved in arranging money transfers for their clients and that by doing so they bypassed processes and requirements of their employers.

In deciding the penalty, the SFC took into account that:

￭　the manner in which Cho and Ju allowed their personal bank accounts to be used as conduits for transferring funds of unverified sources and their attempts to bypass the internal requirements of their employers were dishonest conduct and posed a serious threat to the integrity of the market;

￭　Cho and Ju failed to perform proper know-your-client procedures in that they failed to identify and verify beneficial ownership of the relevant client accounts and the source of the clients’ funds; and

￭　a clear message needs to be sent to the market that account executives should not meddle with the settlement procedures of their firms which are designed to protect their firms and their clients from financial loss, fraud and other misconduct.

Although the SFC is of the view that the nature and seriousness of this matter would have also justified a suspension of Ju’s licence, the SFC decided to reprimand Ju and fine her $100,000 after taking into account the effect on the family of Cho and Ju and recognising Ju’s role was a secondary one with Cho primarily involved in liaising with the money changers and the Mainland clients in arranging the transfer of funds.

End

Notes:

1. Cho is licensed as a representative under the Securities and Futures Ordinance (SFO) to carry on Type 1 (dealing in securities) and Type 2 (dealing in futures contracts) regulated activities and was accredited to BOCOM International Securities Limited from 12 September 2007 to 15 November 2013.

2. Ju is licensed as a representative under the SFO to carry on Type 1 (dealing in securities) and Type 2 (dealing in futures contracts) regulated activities and was accredited to Quam Securities Company Limited from 24 February 2005 to 23 October 2010. Since 25 October 2010, Ju has been accredited to Phillip Securities (Hong Kong) Limited and Phillip Commodities (HK) Limited.

3. A copy of the Statement of Disciplinary Action in relation to the matter is available on the SFC website.

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