Two Bank of China Staff Arrested by Hong Kong Police, SCMP Says

Two Bank of China Staff Arrested by Hong Kong Police, SCMP Says
March 27, 2010, 2:24 AM EDT

March 27 (Bloomberg) -- Two employees of Bank of China Ltd.’s Hong Kong unit were arrested over the lender’s sales of securities linked to failed Lehman Brothers Holdings Inc., the South China Morning Post reported, citing unidentified police.

“We don’t comment on media reports regarding the enforcement actions of the police,” Man said in a phone interview.

Banks in Hong Kong sold more than $1.8 billion of so- called Lehman minibonds before the company’s 2008 collapse triggered a slump in the value of the notes and sparked almost daily protests by buyers who said they had been misled. The Commercial Crime Bureau yesterday arrested two women on suspicion they fraudulently or recklessly induced others to invest money.

“The duo were believed to have separately misled and induced eight customers on various occasions to purchase structured products between 2005 and 2008,” the police said in a statement yesterday, without disclosing the identities of the suspects or their employer.

About HK$3.5 million ($450,000) was involved, police said.

Buybacks

The arrests may revive questions about whether banks properly supervised staff involved in selling the minibonds. Lawmakers last year scolded the heads of the city’s central bank and securities watchdog in public for not more closely supervising bank sales of complex financial instruments.

“The authorities should also look at more senior management at the banks, and not limit their investigations to just the front-line sales staff,” said Emily Lau, a member of Hong Kong’s Legislative Council. “Action on this case has been too slow -- they should act more quickly if they have the evidence.”

Banks that sold the minibonds have said they explained the securities to their customers. In July, the banks agreed to buy back the minibonds for at least 60 cents on the dollar. BOC Hong Kong (Holdings) Ltd. said in a filing at the time that it would pay about HK$3.11 billion to buy back notes.

The Hong Kong Monetary Authority, which supervises banks, has completed investigations into more than 99 percent of the 21,541 complaints it received over the sale of Lehman-linked securities, the regulator said in a statement yesterday.

Of those, 2,842 cases have entered or may enter a disciplinary process, the HKMA said, while 3,691 cases were closed due to insufficient evidence. There were 14,861 cases resolved under the repurchase plan, the statement said.

--Editors: Jim McDonald, Terje Langeland