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The Securities and Futures Commission (SFC) announced after market close on Tuesday (October 13) that it had taken action against two groups suspected of manipulating new-share subscriptions. ChaBaiDao (stock code: 2555) was ordered by the SFC to suspend trading from 9am that morning. The restriction on the first group is capped at HK$4.379 billion, the largest amount ever involved in a case of this kind handled by the regulator.

What the SFC has done

The SFC issued restriction notices to six brokerages, prohibiting them from dealing with or disposing of assets in client accounts held in the names of Sun Ran and eight related companies, up to a limit of HK$4.379 billion. The nine entities are suspected of taking part in IPO fraud schemes involving Pukang Vision (stock code: 2592) and ChaBaiDao. Sun Ran is a licensed representative of Harvest International Investments. The South China Morning Post reported that the eight companies were incorporated in the British Virgin Islands, Seychelles and Samoa.

The second group involves Liu Haoran and two companies, and is suspected of taking part in an IPO fraud scheme involving Tianju Dihe (stock code: 2479). The SFC issued notices to 29 brokerages, with the restrictions capped at HK$285 million. The two groups are subject to restrictions totalling up to HK$4.664 billion.

The SFC said the brokerages receiving the notices were not subjects of the investigation, and that the notices would not affect their operations or other clients. The six brokerages are CICC Hong Kong Securities, CMB International Securities, Futu Securities International (Hong Kong), Haitong International Securities, Harvest International Investments and China Prosper Capital Securities.

The regulator said it was seriously concerned that ChaBaiDao's IPO may have been manipulated to create a false appearance of demand for its shares. The investigation is continuing. The SFC declined to comment further and has not reached any conclusion on whether there had been misconduct.

Allegations over IPO proceeds being moved in a circle

The SFC said some IPO proceeds may have been transferred out of the listed companies under undisclosed agreements between the companies and the groups involved, ostensibly for investment in financial products. The agreements may have facilitated the covert flow-back of funds to major IPO placees or their connected parties. The regulator said the parties involved could later be ordered to compensate affected investors through a restoration process.

It should be noted that the SFC's description concerns the suspected schemes as a whole and does not set out the funding arrangements of each company individually. The restricted amount represents the ceiling on assets in the accounts, not proven proceeds of illegal activity.

ChaBaiDao: market value falls from HK$25.86 billion to about HK$6 billion

ChaBaiDao listed on April 23, 2024, at an issue price of HK$17.50 per share. It issued about 148 million shares and raised total proceeds of approximately HK$2.586 billion, with the Hong Kong public offering accounting for about 10 per cent. Phoenix Finance, citing the prospectus, reported that the public offering was only 0.5 times subscribed. The stock closed about 26.9 per cent lower on its first trading day, giving the company a market value of about HK$18.9 billion.

It closed at HK$4.035 on October 12, the day before the suspension, about 77 per cent below its issue price. Its market value was about HK$5.96 billion, down more than 36 per cent this year. Compared with its market value of about HK$25.86 billion at the time of the offering, the company has lost about HK$19.9 billion in market value over the past two and a half years.

Three new listings, two groups

The three new listings named by the SFC fall into two groups. Pukang Vision and ChaBaiDao are linked to the same group. Pukang Vision listed in July 2025, with its public offering 78.78 times subscribed while its international offering was only 0.89 times subscribed. The company was ordered by the SFC to suspend trading on September 10, 2026, with its share price about 88 per cent below the issue price before the suspension. Tianju Dihe belongs to the second group. It listed in June 2024 and has been suspended since April 1, 2025, over its delay in publishing its results.

The subscription patterns of the two IPOs linked to the same group were not the same: Pukang Vision attracted strong retail interest but weak institutional demand, while ChaBaiDao's public offering was undersubscribed. The SFC has not specified the alleged form of manipulation.

Third suspension since September and what comes next

Since September, the SFC has used its power under Rule 8(1) of the Securities and Futures (Listing of Securities) Rules to order a suspension for the third time. The previous two cases involved Pukang Vision on September 10 and Silver Grant International Industries (stock code: 171) on September 25. According to Finet, the SFC published consultation conclusions on October 12 proposing amendments to strengthen action against misconduct in IPOs and listed companies. The changes are expected to take effect in the first quarter of 2027.

Companies ordered by the SFC to suspend trading must submit a resumption proposal and obtain the regulator's approval before resuming trading. In previous cases, this has often taken months or even years. ChaBaiDao was scheduled to hold an extraordinary general meeting on October 30 to consider an H-share incentive scheme and an interim dividend of 15 cents per share. It remains unclear whether the meeting can go ahead as planned.