ASIC has banned Dr Bingxing Hu (Dr Hu), of Melbourne, Victoria, from providing financial services for five years.

Dr Hu was a director of AFS Capital Securities Limited ACN 143 006 151 (AFS Capital) from 8 April 2010 until 18 April 2017. AFS Capital's primary business is to assist companies to list on the Australian Stock Exchange (ASX).

The banning follows an ASIC investigation into Dr Hu's conduct between 4 August 2014 and 4 June 2015, when AFS Capital was lead-managing a listing on ASX by a company.

Following a hearing, an ASIC delegate found that Dr Hu failed to comply with a financial services law by knowingly engaging in conduct that was likely to mislead in contravention of s1041H(1) of the Corporations Act. The ASIC delegate also found that Dr Hu may not be adequately trained, or not competent, to provide financial services, having demonstrated by his conduct a disregard and a misunderstanding of the rules applying to the financial services that he was providing.

The ASIC delegate found that Dr Hu: 

a) caused a list supplied by the company of 158 applicants for shares incorrectly purported to be Australian residents to be forwarded to the Company's share registry;

b) signed a statutory declaration declaring that to his "knowledge…no artificial means have been used to achieve the spread requirement" when he knew or should have known that this was false; and

c) sent emails to various persons that falsely represented that the minimum subscription requirement had been met.

Dr Hu has a right to apply to the Administrative Appeals Tribunal for review of ASIC’s banning order.

Background

The ASX listing rules sets out requirements that must be satisfied for an entity to gain admission to the official list, that is, to be listed on the ASX. One of these conditions includes a requirement that a company must have at least a minimum number of shareholders (spread requirement). This condition is not met if spread is obtained by artificial means.

In addition, the ASX Guidance Notes state:

"There is no specific requirement in the Listing Rules for a minimum number of Australian-resident security holders. However, ASX does encourage entities in the ASX Listing category to have at the time of their admission to the official list a reasonable number of security holders resident in Australia with security holdings of at least A$2,000 in value, to promote local interest and liquidity in its securities. ASX also has a residual discretion under Listing Rule 1.19, which it may exercise in an appropriate case, to require as a condition of admission that the applicant has a minimum number of Australian resident security holders with a minimum size or value of security holding."

In the period 1 September 2014 to 6 September 2015, the ASX Guidance Notes further stated:

"ASX will not accept security holdings obtained by artificial means as counting towards minimum spread. ASX regards the following as "artificial" for these purposes:

• giving securities away;
• offering non-recourse loans to prospective investors to acquire securities;
• having investors pre-complete transfers of their securities to a third party ahead of listing;
• having investors enter into purchase agreements or call options that allow a third party to acquire their securities for a period after listing;
• having investors enter into repurchase agreements or put options that allow them to dispose of their securities to a third party for a period after listing;
• brokers allocating securities to discretionary managed accounts without the knowledge or consent of the client for whom those accounts are managed; and
• splitting a beneficial holding of securities across multiple trustees, nominees or family members.

… ASX may require evidence to verify that an entity has achieved minimum spread without using artificial means. This may include requiring:

• the entity to provide copies of its share register, bank statements, application forms and cheques or other evidence of payment by investors;
• a statutory declaration from an officer of the entity or from an officer or employee of any broker involved in the listing confirming that artificial means have not been used to achieve spread; and/or
• the entity to provide to ASX, at its own cost, a report from an independent expert selected by ASX verifying that the entity has achieved spread without using artificial means."