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REGULATORY ENFORCEMENT NEWSLETTER - ISSUE 1

A quarterly roundup of regulatory issues

3

Yorkey Optical International (Cayman) Limited (“Yorkey”)

– no profit warning, how

not

to comply with Part XIVA

On 28 February 2017, the MMT found that Yorkey, its CEO Nagai Michio and CFO Ng Chi Ching

had each breached their statutory obligation to disclose inside information.

Inside information

The MMT concluded that Yorkey’s low turnover and

losses contained in October to December 2012’s

monthly management accounts satisfied the definition

of inside information (section 307A(1) SFO) being

specific information relating to the company, not

generally known to the public and which would

materially affect Yorkey’s share price.

Furthermore, the monthly results from July to

November were sufficiently poor to indicate to

management that 2012’s results would be much worse

than expected.

When disclosure of the inside information

should have happened?

The MMT found that Mr Michio in performing his duties

as CEO of Yorkey had (or ought reasonably to have)

come to know of the company’s deterioration by mid-

January 2013 at the latest (when he had the monthly

management accounts for December and 2012 internal

accounts). At that point in time the obligation to

disclose the inside information as soon as reasonably

practicable existed and as stated above, that was

breached because the public was not informed of

Yorkey’s poor performance until 25 March 2013 (two

months later).

Mr Michio and Mr Ng, Yorkey’s officers, breached

section 307G of the SFO for failing to have taken all

Facts

In its Interim Results for the first six months of

2012 (released 16 August 2012), Yorkey’s revenue

decreased compared to the same period in 2011 by

12.1%. Net profit had also fallen by 62%.

Nonetheless Yorkey stated that it expected

significant growth and increasing profitability in the

second half of the year.

No growth or profitability followed. In fact in the

second half of 2012 Yorkey sustained material

losses and its financial performance deteriorated

significantly.

No profit warning was made and Yorkey did not tell

the public that the company would not be achieving

the significant growth and increased profitability it

had stated was expected.

Yorkey announced its 2012 results on 25 March

2013 (after Part XIVA had become law) when the

company reported:

(i)

a loss before tax of US$136,000 (profit before

tax was US$7.531 million in 2011); and

(ii)

net profit (after tax credit) had declined by

99% from 2011. Yorkey’s revenue and

profitability had also decreased in the second

half of 2012.

Yorkey’s Share Price

In the 3 days after reporting its 2012 results,

Yorkey’s share price fell by 21.25% from HK$0.80

to HK$0.63 per share.

Investigation

The SFC found:

1.

Yorkey prepared monthly management accounts

which would be available in the middle of the

next month for review by Mr Michio;

2.

The monthly management accounts for October,

November and December 2012 showed Yorkey

incurring significant net losses for those

months; and

3.

In mid-January 2013, internal accounts for 2012

were available and passed to Mr Michio, so he

was aware of the company’s deteriorating

performance by then at the latest.