SECURITIES AND FUTURES COMMISSION v. PACIFIC SUN ADVISORS LTD AND ANOTHER

HCMA 490/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MAGISTRACY APPEAL NO 490 OF 2013

(ON APPEAL FROM ESS 30881 - 30884 OF 2012)

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J U D G M E N T

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1.  This is an appeal by way of case stated brought by the Securities and Futures Commission (“the SFC”) against the acquittal in the Magistrates Court on four informations laid on the SFC’s behalf under provisions of the Securities and Futures Ordinance, Cap.571 (“ the SFO”).The informations were laid in Cases Nos ESS 30881/2012, ESS30882/2012, ESS30883/2012 and ESS30884/2012. I will refer to them respectively as the 1^st, 2^nd, 3^rd and 4^th informations. The 1^st and 3^rd informations were laid against Pacific Sun Advisors Ltd (“PSA Ltd”) while the 2^nd and 4^th informations were laid against Mr Andrew Pieter Mantel (“Mr Mantel”). All my references to sections and subsections will be to those of the SFO. The informations laid against PSA Ltd were laid under s.103(1)(b) and 4(b) while the informations laid against Mr Mantel were laid under those provisions and s.390(1).

2.  By the 1^st information, PSA Ltd was charged that it

“on or around 2^nd and 3^rd November 2011 in Hong Kong did issue an advertisement entitled “Pacific Sun Advisors Launches the Pacific Sun Greater China Equities Fund” by way of email which, to [its] knowledge, contained an invitation to the public to acquire an interest in or participate in or offer to acquire an interest in or participate in, a collective investment scheme, namely the “Pacific Sun Greater China Equities Fund”, when the issue was not authorized by the Securities and Futures Commission.”

3.  By the 2^nd information, Mr Mantel was charged that he was

“an officer of Pacific Sun Advisors Ltd as at 2^nd and 3^rd November 2011 and that on or around those dates Pacific Sun Advisors Ltd committed an offence under sections 103(1)(b) and 103(4)(b) of the Securities and Futures Ordinance by issuing in Hong Kong an advertisement entitled “Pacific Sun Advisors Launches the Pacific Sun Greater China Equities Fund” by way of email which, to its knowledge, contained an invitation to the public to acquire an interest in or participate in or offer to acquire an interest in or participate in, a collective investment scheme, namely the “the Pacific Sun Greater China Equities Fund”, when the issue was not authorized by the Securities and Futures Commission and that [he] did aid, abet, counsel, procure or induce the commission of such offence by Pacific Sun Advisors Ltd or that such offence was committed with [his] consent or connivance or was attributable to [his] recklessness.”

4.  By the 3^rd information, PSA Ltd was charged that it

“in or around November and December 2011 in Hong Kong did issue one or more advertisement, namely a document entitled “Pacific Sun Advisors Launches the Pacific Sun Greater China Equities Fund”, a document entitled “Pacific Sun Greater China Equities Fund” and / or a PowerPoint entitled “Pacific Sun Greater China Equities Fund” on your website (www.pacificsun.com.hk) which, to [its] knowledge, contained an invitation to the public to acquire an interest in or participate in or offer to acquire an interest in or participate in, a collective investment scheme, namely the “Pacific Sun Greater China Equities Fund”, when the issue was not authorized by the Securities and Futures Commission.”

5.  By the 4^th information, Mr Mantel was charged that he was

“an officer of Pacific Sun Advisors Ltd in November and December 2011 and that in or around those months Pacific Sun Advisors Ltd committed an offence under sections 103(1)(b) and 103(4)(b) of the Securities and Futures Ordinance by issuing in Hong Kong one or more advertisement, namely a document entitled “Pacific Sun Advisors Launches the Pacific Sun Greater China Equities Fund”, a document entitled “Pacific Sun Greater China Equities Fund” and / or a PowerPoint entitled “Pacific Sun Greater China Equities Fund” on its website (www.pacificsun.com.hk) which, to its knowledge, contained an invitation to the public to acquire an interest in or participate in or offer to acquire an interest in or participate in, a collective investment scheme, namely the “Pacific Sun Greater China Equities Fund”, when the issue was not authorized by the Securities and Futures Commission and that [he] did aid, abet, counsel, procure or induce the commission of such offence by Pacific Sun Advisors Ltd or that such offence was committed with [his] consent or connivance or was attributable to [his] recklessness.”

6.  The Stated Case begins with the terms of the informations, the fact that PSA Ltd and Mr Mantel were acquitted with costs against the SFC (to be taxed if not agreed) and the fact that the case is stated upon the SFC’s application. Then comes the first main heading, which is “Prosecution case”. The first sub-heading thereunder is “Background”, under which it is said that “[PSA Ltd], a company of which [Mr Mantel] had complete control and management, was under the supervision of [the SFC]”.

7.  The next sub-heading is “The email (exhibit P8 – summonses ESS30881–30882/2012)”. Under this sub-heading, the following is said:

“PW1 was the case officer at the Intermediaries Supervision Division of [the SFC] who handled the 1^st Respondent’s affairs with [the SFC]. When performing her duty, she would communicate with [PSA Ltd] principally by email.

On about 2 November 2011, PW1 received at her office an unsolicited email from [PSA Ltd] (exhibit P8) (“Email”). The Email was prepared by [Mr Mantel] announcing the launch of the Fund. Attached to the Email was a press release (“Press Release”) to the same effect.

The Email specified that if the recipient would like to get in touch with [PSA Ltd’s] founder and CEO, he could contact [Mr Mantel] direct.

In the Press Release, it was said: ‘For additional information, please contact Candy Tse, Investor Relations.’

The Email came with a disclaimer, the more significant part of which read:

‘This email and any attachments are intended for use of the addressees only and are confidential and may be legally privileged… The message is provided for informational purposes and should not be construed as an offer to sell nor a solicitation of any offer to buy shares in any fund advised by us. Any offering is only pursuant to the relevant offering memorandum, together with the current financial statements of the relevant fund, if available, and the relevant subscription form, all of which must be read in its entirety. No offer to purchase shares will be made or accepted prior to the receipt by the offeree of these documents and the completion of all appropriate information.’

The Fund was undoubtedly a collective investment scheme within the meaning given to that term in Part 1 of Schedule 1 to the SFO.

[PSA Ltd and Mr Mantel] never made any application to [the SFC] under s.104 of the SFO for the Fund to be designated an authorized collective investment scheme.

No application had been made under s.105 of the SFO to have any issue of advertisement of the Fund authorized by [the SFC].

The Email was not sent just to PW1 but to all potential investors whose email addresses were maintained in [PSA Ltd’s] database.

In the database, [PSA Ltd’s] potential investors were put into three tiers: Tier 1 being investors with greatest interest in investing in [PSA Ltd’s] funds, Tier 2 with less interest than Tier 1, and Tier 3 with the least interest.

In addition, the Email was also sent to addresses in the general list, namely, those with professional dealings with [PSA Ltd], e.g., brokers, auditors, accountants, and officers of the Appellant (PW1 included).”

8.  That is what is said under that sub-heading. The next sub-heading is “The website (summonses ESS30883-30884/2012)”, under whichthe following is said:

“[PSA Ltd’s] official website (“Website”) was maintained and kept up to date in accordance with [Mr Mantel’s] instructions.

On 24 November 2011, an officer of [the SFC] (PW2) visited the Website and, clicking the “Fund Information” icon, gained access to the Press Release together with a fact sheet and a PowerPoint presentation (“PowerPoint”) containing a large amount of information about the Fund (the relevant printouts from the Website were marked Exhibit P9).

The PowerPoint began with a disclaimer, the second paragraph of which was as follows:

‘This document does not constitute, and may not be used for the purposes of, an offer or solicitation to anyone in any jurisdiction in which such offer or solicitation is not authorized, and to any person to whom it is unlawful to make such offer or solicitation…’

The officer (PW2) made a telephone call to [PSA Ltd] to enquire about the Fund. In evidence he denied having been told during that telephone conversation that the Fund was intended for professional investors, but he agreed he was advised of the minimum amount of investment, namely, US$100,000.

He told the court in no uncertain terms that he was never asked whether he was interested in the Fund; he was simply given more information about it.”

9.  The next sub-heading is “Candy Tse (PW3)”. Under it, this is said:

“She is a staff of [PSA Ltd]. She gave evidence for [the SFC] and confirmed that the Fund was available to professional investors only, and that [PSA Ltd] had a screening procedure to ensure the investors’ status as such.”

10.  Then comes the sub-heading “The 2^nd Respondent’s Cautioned Interview”. It is the last sub-heading under the main heading “Prosecution Case” and says as follows:

“In gist, [Mr Mantel] said nothing in his interview that contradicted [the SFC’s] case. He maintained that the Fund targeted qualified professional investors only.

He gave details of the compilation of [PSA Ltd’s] list of potential investors, saying he collected information on financial entities when attending conferences or business meetings or the like throughout his career.

He said he would conduct background checks on these persons and entities to satisfy himself that they were qualified professional investors before including them in [PSA Ltd’s] database.”

11.  Having outlined the prosecution’s case in the foregoing way, the Stated Case turns to the defence case and, under the main heading “Defence case”, it says this:

“[Mr Mantel] gave evidence on his as well as [PSA Ltd’s] behalf. In short, he repeated in substance what he said during the interview, providing documentary proof that several qualified professional investors had subscribed to the Fund and gave details on the maintenance of the Website.

He reiterated that the Fund was never meant to be marketed to the general public.”

12.  The third main heading in the Stated Case is “Parties’ Contentions”. In outlining the SFC’s contentions, it begins by doing so under the sub-heading “Whether exhibits P8 and P9 contained the prescribed invitation”. Under this sub-heading, the following is said:

“It was contended on behalf of [the SFC] that exhibits P8 and P9 are advertisements in respect of the Fund and as defined in s.103(10)(a) and (b) of the SFO.

In respect of exhibit P8, [the SFC] contended that the Email and the Press Release were sent out with a view to soliciting investment in the Fund.

In respect of exhibit P9, [the SFC] contended that:

(i) The three documents of exhibit P9, either alone or read together, are or contain an invitation to the public to acquire an interest in or participate in, or offer to acquire an interest in or participate in, the Fund.

(ii) The purpose of uploading the three documents onto [PSA Ltd’s] Website (which was not expressly admitted by [Mr Mantel] in his oral testimony) was for the purpose of inviting members of the public to acquire an interest in or participate in, or offer to acquire an interest in or participate in, the Fund. [Mr Mantel] admitted as much in his interview with [the SFC’s] officers.

(iii) The three documents were aimed at promoting the Fund to the public at large, whether in Hong Kong or elsewhere, and aimed at recruiting as many investors as possible.

(iv) The three documents were selling the Fund to potential investors.

As to the disclaimers of exhibits P8 and P9, [the SFC] contended that they concerned only the accuracy of the contents. The disclaimers cannot turn a document that is or contains prescribed invitation under s.103(1) of the SFO into one that is not or does not contain the prescribed invitation.”

13.  Then, still on the SFC’s contensions, the Stated Case says the following under the sub-heading “The applicability of s.103(3)(k) of the SFO”:

“[The SFC] contended that s.103(3)(k) of the SFO must be read together with ss.102-105 of the SFO. It was submitted that:

(i) Sections 102-105, appearing in Part IV of the SFO, confer a wide power upon [the SFC] to supervise and regulate all matters relating to collective investment schemes.

(ii) This is in accordance with the objective and Long Title of the SFO, namely “An Ordinance to consolidate and amend the law relating to financial products… the regulation of activities and other matters connected with financial products, the protection of investors and other matters incidental thereto or connected therewith, and for connected purposes.

(iii) In order to achieve the above objective, Part IV of the SFO introduces two safeguards – first a collective investment scheme requires an authorization of [the SFC] under s.104; second the issue of any advertisement, invitation or document relating to the authorized collective investment scheme requires another authorization of [the SFC] under s.105.

(iv) The above matters are important and must be borne in mind in the proper construction of the provisions of ss.102-105.

Since s.104 confers a power to [the SFC] to authorize collective investment schemes, it must follow that s.105 confers a power to [the SFC] to authorize issues of advertisement, invitation or document relating only to authorized collective investment schemes. It is plainly against the intention of Part IV of the SFO to suggest that under s.105, [the SFC] may authorize the issue of advertisement, invitation or document relating to a collective investment scheme even if:

(i) That collective investment scheme has never been submitted to [the SFC] for authorization, or

(ii) In the event of an application for authorization having been submitted to [the SFC] under s.104, the application is not yet approved or has been rejected.

In other words, a person who issues an advertisement, invitation or document that to his knowledge is or contain an invitation as prescribed in s.103(1) of the SFO in respect to a collective investment scheme that has not been authorized by [the SFC] under s.104 commits an offence under s.103(1)(b), unless he is able to avail himself of one of the exemptions provided under s.103(2),(3) and (5)-(9).

Importantly, the offence in s.103(1)(b) focuses on the issue or possession for issue of the unauthorized advertisement, invitation or document but not on the acquisition or subscription of the underlying interests in the collective investment scheme. If the purpose of the provision was to regulate the sale of interests in the collective investment scheme, then s.103(1)(b) would have prohibited the acquisition or subscription of interests in the scheme marketed through unauthorized material, but that is not what the Legislature has done. Instead it has prohibited the issue of advertisement, invitation or document that is or contains an invitation to the public unless the material has been authorized by [the SFC] in advance. In this respect, the gravamen of the offence is on the issue or possession for issue of the unauthorized material but not on any subsequent sale of products that are the subject of the material.

The answer to the proper construction of the s.103(3)(k) exemption lies in construing the exemption together with s.103(1)(b). The exemption permits an advertisement, invitation or document to be issued (or to be in a person’s possession for the purpose of issuing) if it is or contains an offer to a class of the public that is limited to those who fall within the definition of professional investor. If, on the other hand, the advertisement, invitation or document is or contains an offer to the public more widely, then it must be authorized by [the SFC] under s.105 (and the collective investment scheme must be authorized by [the SFC] under s.104 as well.)

It is clearly against the legislative intention of Part IV and the Long Title of the SFO that a collective investment scheme that is or intended to be disposed of only to professional investors can be allowed (a) to be advertised to the public at large, including those people who are not professional investors, and (b) to invite those non-professional investors to acquire an interest in or participate in, or offer to acquire an interest in or participate in, that collective investment scheme. It is necessary to ensure that none of the advertisements relating to collective investment schemes which are or are intended for professional investors only can be promoted to non-professional investors in order to protect ordinary investors from exposure to any unauthorized collective investment schemes. This interpretation achieves the objective of protecting the investing public.

The fact that the collective investment scheme might be or might be intended to be disposed of only to professional investors is merely background but is not and can never be the determining factor as to whether the s.103(3)(k) exemption applied or not.

In determining the applicability of s.103(3)(k) to the facts of the present case, [Mr Mantel’s] evidence that he would carry out a screening process to ensure that all investors in the Fund were professional investors is not relevant to the determination of the four summonses in question, because his evidence concerns matters post-advertisement. What happened after the issuance of exhibits P8 and P9 is wholly irrelevant to the determination of the four summonses. What is important is:

(i) The contents of exhibits P8 and P9, and whether it contains “an invitation only to professional investors”, and

(ii) Whether exhibits P8 and P9 were issued only to professional investors.

[The SFC] also contended that [PSA Ltd and Mr Mantel] bore an evidential burden in invoking the s.103(3)(k) exemption, citing the Judgment of the Court of Final Appeal in HKSAR v Fu Kor Kuen Patrick & Anor [2012] 5 HKC 189, paras 38, 66, 87-98.

On the evidence, [the SFC] contended that (a) since the invitation contained in exhibits P8 and P9 were not expressly or by implication limited to professional investors; (b) the relevant materials were not distributed only to professional investors; and (c) the Fund was not disposed of only to professional investors (only two of the six subscribers to the Fund signed the warranty in the subscription form warranting that they were professional investors), s.103(3)(k) did not apply on the facts of the present case.”

14.  Following that, the Stated Case outlines PSA Ltd and Mr Mantel’s contentions. As to whether P8 and P9 contained the prescribed invitation, this is said:

“It was contended on behalf of [PSA Ltd and Mr Mantel] that exhibits P8 and P9 do not constitute an invitation to acquire an interest in, or participate in a collective investment scheme.

In respect of exhibit P8, it was submitted that:

(i) Close examination of P8 shows that on its own, it does not contain enough information to constitute an invitation to acquire an interest in, or participate in a collective investment scheme.

(ii) Taken at its highest, P8 announces the launch of the Fund and what it will do. Apart from saying it will “invest”, P8 does not give details of the investment vehicle and how it will operate.

(iii) For additional information, the reader is invited to contact Candy Tse (PW3) of Investor Relations. PW3’s evidence was that when such calls were received, PW3 would inform interested investors that the Fund was for professional investors whose net worth was more than HK$8 million and that the minimum investment was US$100,000.00.

In respect of exhibit P9, it was submitted that:

(i) It does not contain an invitation to the public to acquire an interest in or participate or offer to acquire an interest in a collective investment scheme.

(ii) Such an offer is expressly excluded in the disclaimer at page 101 of the prosecution bundle. The PowerPoint is just as much a promotion of [PSA Ltd] as anything else. Although a non-professional investor may have seen the PowerPoint on [PSA Ltd’s] Website, it clearly states at page 118 that the minimum investment is US$100,000, which is obviously aimed at professional investors only. Once it is known that the minimum investment is US$100,000, a member of the public is likely to consider it beyond their capacity to invest and be discouraged from taking any further action.

(iii) The PowerPoint does not invite the public to acquire an interest in the Fund. If the reader remains interested after seeing that the minimum investment is US$100,000, they are invited to contact either [Mr Mantel] or PW3. The wording of the PowerPoint may not reasonably be taken to do anything more than that.”

15.  As to the applicability of s.103(3)(k), this is said:

“[PSA Ltd and Mr Mantel] contended that if the issue of the advertisement or invitation is for a collective investment scheme which is intended to be disposed of only to professional investors, the advertiser is not guilty of an offence under s.103(1)(b) by virtue of the exemption under s.103(3)(k).

In respect of the interpretation of ss.103-105 of the SFO, it was submitted that:

(i) There is no requirement that all collective investment schemes must be authorized by [the SFC] under s.104. All the section says is that [that SFC] “may” authorize a collective investment scheme, subject to conditions, if appropriate. The section does not make authorization mandatory.

(ii) By virtue of s.103(11), a collective investment scheme which is not authorized by [the SFC] under s.104, may not avail itself of the exemptions set out in s.103(2)(a), (b), (c) or (i) or (5)(a), (b) or (c) in the event of an offence being committed under s.103(1).

(iii) Section 105 does not require that all advertisements or invitations are authorized by [the SFC], as argued by [the SFC]. The clear application of s.105 is to enable the authorization of advertisements or invitations to do any act referred to in s.103(1)(a) or (b).

(iv) By incorporating the s.103(3)(k) exemption in respect of professional investors, the clear intention of the Legislator was to limit the requirement to obtain [the SFC’s] authorization for the issue of advertisements or invitations to those which are not intended to be disposed of only to professional investors. In other words, the issue of an advertisement or invitation to join a collective investment scheme which is intended to be disposed of to the general public, which has not been authorized under s.105, will be in contravention of s.103(1)(a) or (b).

(v) If the collective investment scheme is not authorized under s.104 of the SFO, and an offence has been committed under s.103(1)(a) or (b), the exemptions referred to in s.103(11) will not apply.

(vi) As the exemption at s.103(3)(k) is not included in s.103(11), authorization of the collective investment scheme in accordance with s.104 is not required.

(vii) [The SFC’s] website makes available material dealing with advertising materials of collective investment schemes authorized under the product code. It says that all advertisements must be submitted to [the SFC] for authorization unless exempted under s.103 of the SFO. It makes specific reference to these schemes which are to be disposed of only to professional investors under s.103(3)(k).

Based upon the evidence of PW3 and of [Mr Mantel], it was contended that there was sufficient evidence before the Court that the Fund was only aimed at professional investors. The exemption under s.103(3)(k) must apply for this is what it was intended for. The aim of the SFO is to legislate for the protection of members of the public who may be encouraged to invest in funds which are not designed for professional investors.”

16.  The next main heading is “Analysis”. Under the sub-heading “General considerations”, the following is said:

“[The SFC] bears the onus of proof. It must satisfy me beyond all reasonable doubt of [PSA Ltd and Mr Mantel’s] guilt, otherwise I must acquit them.

That said, [PSA Ltd and Mr Mantel bear] the burden to establish that they have the protection of the exemption provided in s.103(3)(k) of the SFO.

Prior to this case, [PSA Ltd and Mr Mantel] have no records of criminal conviction.

Three witnesses gave evidence for [the SFC]. None of them were shaken under cross-examination. I find them truthful and reliable.

[Mr Mantel] gave evidence in a straightforward manner; there was no sign whatsoever of evasiveness in the entire course of his evidence. Nothing he said was contradictory, unreasonable, or inherently improbable. Bearing in mind his clear record, I find [Mr Mantel] truthful and reliable.

Nothing turns upon PW1’s personal view whether the Email (exhibit P8) was received in her personal or professional capacity; the issue at trial was whether the advertisement contained an invitation to the public, and whether it was issued to the public.”

17.  Then, under the sub-heading “Section 103(1)(b) offence”, this is said:

“Insofar as is material, s.103(1)(b) provides:

‘(1) Subject to subsections…(3)…, a person commits an offence if he issues… an advertisement, …which to his knowledge…contains an invitation to the public –

…

(b) to acquire an interest in or participate in, or offer to acquire an interest in or participate in, a collective investment scheme unless the issue is authorized by the Commission under section 105(1).’

Section 103(3)(k) reads –

‘(3) Subsections (1) does not apply to the issue…

(k) of any advertisement…made in respect of …interests in any collective investment scheme, that are or are intended to be disposed of only to professional investors.’

I observe at once that grammatically the phrase “that are or are intended to be disposed of only to professional investors in section 103(3)(k) has nothing to do with the issue of advertisement. It concerns the interests of the collective investment scheme, otherwise, the phrase should have read: “that is or is intended to be disposed of”.

In my ruling, what is certainly beyond argument is that “issue of advertisement” is always singular.

The wording of section 103(3)(k) admits of no ambiguities; and my conclusion in this regard is confirmed by the corresponding Chinese version of the provision.

To the extent that [the SFC] seeks to argue otherwise, I rule that the argument is totally untenable and fundamentally wrong.

[The SFC] refers me to ss.104 and 105 of the SFO, its arguments in respect of which are set out above. My consideration is as follows.

Section 104 gives [the SFC] the power – on application to [the SFC] – to have a collective investment scheme authorized under the SFO. But nowhere in the SFO is it provided that the application is mandatory, or that the launch of an “unauthorized” collective investment scheme constitutes a criminal offence.

In my judgment, authorization by [the SFC] of a collective investment scheme increases its trustworthiness in the eye of the public. Section 104 provides merely an option to financial entitles to take advantage of the increased stature of the fund when authorized.

My conclusion is reinforced by s.104(8), which reads:

‘(8) The Commission may publish in such manner as it considers appropriate particulars of any collective investment scheme authorized under subsection (1).’

Such publication by [the SFC] would surely benefit the authorized schemes in terms of marketing.

Section 105 gives [the SFC] the power, again on application, to authorize the issue of advertisement containing an invitation to do an act referred to in s.103(1)(a) or (b).

The most important point to note about s.105 is that s.103(1) is at all times subject to the exemption in s.103(3)(k). As a result, s.105 has no application whatsoever to cases where s.103(3)(k) applies.

Reading ss.103, 104, and 105 together, it is clear that the legislative intent must be that collective investment schemes and advertisements relating to them are not regulated if the persons or entitles to whom interests in the schemes are to be disposed of are professional investors alone.

I find that in the case of collective investment schemes for the general public, whether or not authorized under s.104, their advertisements must be authorized under s.105 if the advertisement contains an invitation to the public to do either of the acts referred to in s.103(1)(a) and (b).”

18.  The next main heading is “Findings”. Under this main heading, this is said:

“I find beyond reasonable doubt that:

(i) The Fund launched by [PSA Ltd] at the instruction of [Mr Mantel] constituted a collective investment scheme;

(ii) The Email (exhibit P8) and the Website printouts in question (exhibit P9) are advertisements of the Fund, which were issued to the public, or a sector of the public.

Considering (a) the disclaimers attached to the Email and the PowerPoint and (b) the subsequent screening procedures adopted by [PSA Ltd], I am unable to conclude beyond reasonable doubt that the advertisement contained an invitation to the public to invest in the Fund. I find that they were an invitation to the public to seek further information from [PSA Ltd and Mr Mantel] if required.

In any event, in view of the preponderance of evidence adduced at the trial, I find upon a balance of probability that the Fund launched by [PSA Ltd] was or was intended to be available solely to professional investors and was not one for investment by the general public. I rule that s.103(3)(k) applies to the facts of this case, and that [the SFC] had failed to negative this beyond all reasonable doubt.

In the result, I find [PSA Ltd and Mr Mantel] not guilty of the offences referred to in the four summonses, which were dismissed accordingly.”

19.  We come now to the questions of law on which this Court’s opinion is sought on this appeal by way of case stated. Under the heading “The Questions of Law”, they are set out thus:

“The questions of law arising from the above statement for the opinion of this Court therefore are:

(i) In considering whether exhibits P8 and P9 contained an invitation to the public to acquire an interest in or participate in, or offer to acquire an interest in or participate in, a collective investment scheme under s.103(1) of the SFO, did I err in law in:

(a) finding that exhibits P8 and P9 contained an invitation to the public to seek further information from [PSA Ltd and Mr Mantel] (if required);

(b) failing to apply the deeming provision as provided for s.103(10) of the SFO; and / or

(c) placing weight or undue weight on the two ‘disclaimers’ in exhibits P8 and P9 in light of all the evidence before me?

(ii) Is it correct that no reasonable magistrate properly directed could have concluded that exhibits P8 and P9 did not contain the ‘invitation’ as prescribed in s.103(1) of the SFO?

(iii) For s.103(3)(k) to be applicable, as a matter of statutory interpretation, does the advertisement, invitation or document itself need to contain a reference to the fact that the securities or structured products, or interests in any collective investment scheme being advertised or promoted are, or are intended to be disposed of only to professional investors?

(iv) Given the finding that the Fund launched by [PSA Ltd] was or was intended to be available solely to professional investors and was not one for investment by the general public, did I err in law in finding that s.103(3)(k) applied to exhibits P8 and P9?”

20.  Having set out the circumstances of the case as they have been stated by the Magistrate and having set out the questions of law on which this Court’s answers are sought, I will now proceed to answer those questions. In doing so, I say at once that I have of course given careful consideration to all the arguments addressed to me orally and in writing, especially those of counsel for PSA Ltd and Mr Mantel since this case is concerned with criminal offences alleged against them. That said, I do not propose to recite or analyse all of the arguments but instead to focus on essentials.  As to the construction of the statutory provisions concerned, their proper application and other matters generally, I have of course borne in mind that we are concerned with criminal liability. That has to be borne in mind even though the case does not involve any allegation of bad faith on PSA Ltd or Mr Mantel’s part.

21.  As to Question(i)(a), I begin by observing that the advertisement did contain an invitation to seek further information if required. But that does not mean that the advertisement amounted to no more than such an invitation. The very fact that the advertisement contained an invitation to seek further information if required points to the fact that it already provided some information. What was being announced was the launch of a fund. It is plain that that fund amounted to a collective investment scheme.

22.  The issue to which this question is directed is whether the public was being invited to acquire an interest in or participate in, or offer to acquire an interest in or participate in, a collective investment scheme. Just because the public was being invited to seek further information if required on that scheme, it does not mean they were not also being invited to acquire an interest in or participate in, or offer to acquire an interest in or participate in a collective investment scheme.

23.  This brings us to the deeming provision found in s.103(10)(a), which deeming provision is the subject-matter of Question(i)(b). Section 103(10)(a) says that “an advertisement, invitation or document which consists of or contains information likely to lead, directly or indirectly, to the doing of any act referred to in subsection(1)(a) or (b) shall be regarded as an advertisement, invitation or document (as the case may be) which is or contains an invitation to do such act”.

24.  So, relevantly to the present case, an advertisement which contains information likely to lead, even if only indirectly, to members of the public acquiring an interest in or participating in, or offering to acquire an interest in or participate in, a collective investment scheme shall be regarded as an advertisement to the public to do those acts.

25.  As for the disclaimers referred to in Question(i)(c), those disclaimers cannot be accorded more weight than is consistent with what I have just said on Question(i)(a) and Question(i)(b).

26.  I turn now to Question(ii). In my view, this Court cannot at this stage pronounce on whether a reasonable magistrate properly directed can conclude that the advertisement in question did not contain an invitation to the public to acquire an interest in or participate in, or offer to acquire an interest in or participate in, a collective investment scheme. That depends on whether the information contained in the advertisement was likely to lead, even if only indirectly, to members of the public acquiring an interest in or participating in, or offering to acquire interest in or participate in, a collective investment scheme.

27.  It remains for the Magistrate, directing himself consistently with this judgment, to resolve that question of likelihood which is by its nature a question of fact to be decided within the parameters of the law.

28.  I turn now to the “only to professional investors” point. This is the point with which Question(iii) and Question(iv) are concerned.

29.  By s.103(3)(k), it is provided that s.103(1) does not apply to the issue, or the possession for issue, “of any advertisement, invitation or document made in respect of securities or structured products, or interest in any collective investment scheme, that are or intended to be disposed of only to professional investors”.

30.  The SFC has a duty, to be exercised so as effectively to protect the investing public, in relation to such advertisement, invitation or document. Except possibly in wholly exceptional circumstances, and it is plain that no such circumstances exist in the present case, the SFC, in order to be able to exercise this duty effectively, has to be able to see from the advertisement, invitation or document itself whether it is, by its terms, confined to professional investors to the exclusion of other members of the investing public. Section103(3)(k) is concerned with the advertisement, invitation or document itself and not with what may or may not be the arrangement or intended arrangement behind it.

31.  At best for PSA Ltd and Mr Mantel, his evidence that he would carry out a screening process to ensure that all investors in the fund were professional investors is irrelevant. If anything, the idea of such a screening process suggests that the advertisement will result in some offers to acquire an interest in or participate in the fund coming from non-professional investors who would then have to be screened out.

32.  The foregoing are my answers to the questions posed in the stated case. They can be summarised as follows:-

“(A) Answer to Question(i)(a): Yes in that the finding was treated as conclusive in PSA Ltd and Mr Mantel’s favour on the issue of whether the advertisement contained an invitation to the public to acquire an interest in or participate in, or offer to acquire an interest in or participate in, a collective investment scheme.

(B) Answer to Question (i)(b): Yes.

(C) Answer to Question (i)(c): Yes.

(D) Answer to Question (ii): This Court cannot at this stage pronounce on this question.

(E) Answer to Question (iii): Subject to the possibility of a different answer in wholly exceptional circumstances (which certainly do not exist in the present case), the answer to this question is that it has to be apparent from the advertisement, invitation or document itself that it is confined to professional investors.

(F) Answer to Question (iv): Yes.”

33.  Giving those answers to the questions of law posed in the Stated Case, I allow the appeal to reverse the Magistrate’s decision in the sense of setting aside the acquittals and the costs awarded consequential upon such acquittals and remitting this matter to him with my opinion thereon, as expressed in this judgment, for him to continue with the case and decide, in accordance with the law as I have stated it, whether to convict or acquit on the facts that he finds.

34.  I conclude by thanking counsel on both sides for their assistance.