Court rejects minibonds investor's request to force regulatory action

Court rejects minibonds investor's request to force regulatory action


A court has turned down a request by a minibonds noteholder to overturn decisions by regulators who she says failed to take proper action after investors lost billions of dollars.

Hong Kong investors have alleged they were mis-sold minibonds guaranteed by American investment bank Lehman Brothers, which went bankrupt in September 2008.

Shek Lai-shan, 49, who bought HK$40,000-worth of minibonds from Bank of China, had filed an application at the Court of First Instance for a judicial review of a decision by the Securities and Futures Commission to discontinue its investigations into the banks, and an alleged decision by the Monetary Authority to defer doing so and not to take enforcement action.

But the court judgment yesterday said that to quash and declare unlawful the decisions would disrupt noteholders who had settled with banks, and force the regulators to breach an agreement with them.

The decision to halt action was part of a deal in July last year in which 16 banks that had sold the notes agreed to buy them back at a discount from their principal value.

Shek had rejected the offer and filed the application as a test for tens of thousands of other investors. The Alliance of Lehman Products Victims supported her case financially.

Minibonds are not corporate bonds, but consist of high-risk, credit-linked derivatives. They are marketed as a proxy investment in well-known companies.

Mr Justice Andrew Cheung Kui-nung said that declaring any decision by the regulators unlawful would force them to act in blatant disregard of obligations with the banks.

Further, quashing those decisions would jeopardise the repurchase agreements that 24,482 noteholders had reached with the banks, totalling HK$5.2 billion, the judge said. He said: The potential magnitude of the monetary impact is ... enormous.

He said the allegation that the Monetary Authority decided to defer its investigation was wrong, and said there was evidence that the SFC had completed its investigations regarding the Bank of China before the agreement was made.

The judge said Shek's case did not have a realistic prospect of success.

Alliance member Peter Chan Kwong-yue said the group was disappointed with the ruling.


01 May 2010