SECURITIES AND FUTURES COMMISSION v. MAXIM CAPITAL LTD AND ANOTHER

HCA 2482/2015

[2022] HKCFI 1518

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2482 OF 2015

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J U D G M E N T

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1.  This is the claim by the Securities and Futures Commission (“SFC”)  for the benefit of investors of the 1^st defendant (“Maxim Capital”)  pursuant to the Securities and Futures Ordinance, Cap 571 (“SFO”). The unknown person (or persons)  purporting to carry on the related securities dealing or asset management business known as Maxim Trader (“Maxim Trader”)  and through its various websites (“the Websites”)  is named as the 2^nd defendant. As of early December 2019, not less than 250 affected investors have been identified.

Background

2.  Maxim Capital was at the material times an international business company incorporated under the laws of the Republic of Seychelles on 25 November 2013.  It was registered with the Seychelles Register of International Business Companies (“the Seychelles Register”)  but has been struck off[1], but information from Seychelles confirmed that it is yet to be dissolved.  A Wilfred Royce Lane (“Royce Lane”)  was the one shareholder and director of Maxim Capital.

3.  Maxim Capital was registered in Hong Kong with a business address at Flat 1816, 18/F, Concordia Plaza, 1 Science Museum Road, Tsim Sha Tsui East, Kowloon (“Maxim Club”)  during the period between 1 July 2015 and 30 June 2016.

4.  On or around 1 July 2014, Maxim Capital opened an account with iAccount Services (HK)  Limited (“the iAccount”)  in Hong Kong. iAccount is a licensee of Money Service Operator issued by Hong Kong Customs and Excise Department and handles remittance and currency exchange service for customers.  Maxim Capital’s account was numbered 111250152888 (“the Maxim Capital Account”).  The Maxim Capital Account was maintained by iAccount with China Construction Bank (Asia)  Corporation Limited (customer ID: 0014641070 and account number 10343921)  (“the CCB Account”).

5.  The identities of the person or persons purporting to carry on the related securities dealing or asset management business known as Maxim Trader are unknown.  It was not registered with the Hong Kong Companies Registry.  Nor was it registered to carry on any business in Hong Kong.  It apparently operated the Websites, and held a Mr Andrew Lim and Royce Lane out as its Chief Executive Officer and Chief Legal Counsel respectively.

6.  Since about 27 February 2014, the SFC has received complaints and enquiries from investors about the purported investment scheme, the “Maxim Fund” (“the Maxim Fund”). As a result, the SFC conducted an investigation into the matter.  Directions to investigate pursuant to s.182(1)  of the SFO were issued on 29 May 2014, 4 August 2014, 26 January 2015, 24 July 2015 and after the commencement of this action, on 5 September 2016 and 8 November 2016 as well.

7.  On 27 October 2015, the SFC commenced the present action.

8.  As of 6 November 2015, the balances of Maxim Capital Account consisted of (i) AU$0.98; (ii) HK$387,156.27; (iii) SG$51.88; and (iv) US$2,957,871.86.  On the same date, the SFC obtained from the court two interim injunctions against Maxim Capital.  Until the trial of this action[2], Maxim Capital is restrained from:

(1)  removing from Hong Kong or in any way disposing of or dealing with or diminishing the value of any monies belonging to it which are situated in Hong Kong;

(2)  holding itself out as carrying on a business in relation to regulated activities as defined in the SFO, whilst not licensed or otherwise authorised within the terms of s114 of the SFO;

(3)  issuing, publishing, circulating, distributing or otherwise disseminating any advertisement, including via Facebook or the Websites, in which D1 holds itself out as being prepared to carry the specified regulated activities as defined in the SFO, whilst not licensed or registered for such regulated activities within the terms of s109 of the SFO;

(4)  issuing, publishing, circulating, distributing or otherwise disseminating any advertisement, invitation, or any document including via Facebook or the Websites, that is or contains an invitation to the public to or offer to enter into the Maxim Fund or other collective investment schemes contrary to s103(1)  of the SFO.

9.  The injunctions also directed Maxim Capital to suspend all internet websites and Facebook pages within its power or control promoting or advertising the carrying out of regulated activities as defined in the SFO including but not limited to the Websites.

10.  On 11 December 2015, the SFC also obtained an interim injunction against the Maxim Trader in similar terms.

11.  The statement of claim was eventually filed on 3 December 2018 (and amended on 15 January 2020).  The pleaded bases of the SFC’s claim against the defendants are that they have:

(1)  contravened s.109(1)  of the SFO by issuing an advertisement in which to their knowledge the defendants held themselves out as being prepared to carry on the activity of asset management (Type 9 regulated activity under the SFO), when the defendants were not (and are not)  licensed or registered for such regulated activity as required by the SFO;

(2)  contravened s.114(1)(b)  of the SFO by holding themselves out as carrying on a business, amongst others, of dealing in securities and asset management, which are regulated activities under the SFO (being Types 1 and 9 regulated activities under the SFO), when the defendants were not (and are not)  licensed, registered or authorised for such regulated activities as required by the SFO; and

(3)  further or in the alternative, Maxim Capital by, amongst other things, creating the Maxim Capital Account to handle funds relating to the operations of the Maxim Fund and/or the moneys obtained, handled or managed by the defendants, aided, abetted, or otherwise assisted, counselled, or procured or conspired with Maxim Trader in its contraventions of ss.109(1)  and 114(1)(b)  of the SFO, or alternatively had been knowingly involved, directly or indirectly in Maxim Trader’s said contraventions.

12.  The SFC seeks, amongst others, the following reliefs:

(1)  declaration that the defendants are persons within s.213(1)(a)(i)(A)  of the SFO in that they had contravened s.114(1)(b)  of the SFO by holding themselves out as carrying on a business in regulated activities, without a licence;

(2)  declaration that the defendants are persons within the meaning of s.213(1)(a)(i)(A)  of the SFO in that they had contravened s.109(1)  of the SFO by knowingly issuing an advertisement in which they held themselves out as being prepared to carry on the specified regulated activities, without a licence;

(3)  further or in the alternative, declarations that the defendants are persons within s.213(2)(b)  of the SFO in that they had been involved in contraventions of s.213(1)(a)  of the SFO, whether knowingly or otherwise;

(4)  injunction under s.213(2)(a)  of the SFO restraining or prohibiting the defendants from holding themselves out as carrying on a business in relation to regulated activities as defined in the SFO, whilst not licensed or otherwise authorised within the terms of s.114 of the SFO;

(5)  injunction under s.213(2)(a)  of the SFO restraining or prohibiting the defendants from issuing, publishing, circulating, distributing or otherwise disseminating any advertisement, including via Facebook or the Websites, in which either or both of them may hold themselves out as being prepared to carry on the specified regulated activities as defined in the SFO, whilst not licensed or registered for such regulated activities within the terms of s.109 of the SFO;

(6)  injunction under s.213(2)(f)  or (g)  of the SFO against the defendants to suspend all internet websites and Facebook pages within their power or control promoting or advertising the carrying out of the regulated activities as defined in the SFO, including, but not limited to, the Websites;

(7)  injunction under s.213(2)(c)  of the SFO prohibiting Maxim Capital from removing from Hong Kong or in any way disposing of or dealing with or diminishing the value of any monies belonging to it which are situated in Hong Kong including, but not limited to, all monies in Maxim Capital Account, including all the monies in the CCB Account that are due and payable to Maxim Capital;

(8)  order pursuant to s.213(2)(b)  of the SFO requiring the defendants to take such steps as the Court may direct, including steps to restore investors to any transaction entered into as a result of any of the defendants’ conduct, to the position in which they were before the transaction was entered into;

(9)  order pursuant to s.213(2)(d)  of the SFO, that an administrator be appointed to recover, receive and administer Maxim Capital and/or Maxim Trader’s assets in Hong Kong and/or to recover, receive and administer the money frozen by the injunction, in the Maxim Capital Account or otherwise, or such other sum as appears to the Court to be just, and interest thereon and for that purpose all necessary and proper directions may be given;

(10)  such ancillary or consequential orders (including directions for inquiry and/or taking of account)  as the court may consider necessary to make under s.213(2)(g)  of the SFO in consequence of the making of any of the orders mentioned above;

(11)  further or in the alternative, an order pursuant to s.213(8)  of the SFO requiring the defendants to pay damages (which may include interest whether pursuant to s.48 of the High Court Ordinance (Cap. 4)  or otherwise)  to investors who had directly or indirectly paid money to the defendants and/or paid money into the Maxim Capital Account, as a result of the conduct of the defendants.

13.  As mentioned, the SFC pleaded that as of 9 December 2019, there are 251 investors who are in principle entitled to restoration (under s.213(2)(b)  of the SFO)  and/or damages (under s.213(8)  of the SFO)  (“the Qualified Investors”)  and that the total sum payable to them is HK$97,332,568.33.  This court is given to understand that the class of the Qualified Investors has not closed yet so that new claims may still come.

14.  Maxim Capital has been legally represented since February 2016 until its then solicitors ceased to act for it in April 2019.  None of the defendants has filed any notice of intention to defend or defence.  Nor has any of them filed any witness statements pursuant to the subsequent directions of the master in July 2019.

15.  This court saw no reason not allowing the SFC to proceed in the absence of the defendants.

The issues

16.  The issues to be resolved are broadly:

(1)  whether the defendants have contravened ss.109(1)  and 114(1)(b)  of the SFO as contended; and

(2)  whether the SFC is entitled to the reliefs as sought pursuant to s.213(2)  of the SFO.

Witnesses

17.  SFC proves its case without contest by any of the two defendants.  It called 5 witnesses who adopted their respective witness statements as their evidence.  They consist of:

(1)  Mr Jeffrey Chong, former SFC officer who was the main investigation officer into the present matter until May 2017;

(2)  Mr Lam Man Chiu, former SFC officer who succeeded Mr Chong as the main investigation officer into the present matter until June 2021;

(3)  Mr Ip Chun Kit, who attended and audio-recorded one of the Maxim Trader seminars held on 5 February 2015;

(4)  Mr Wong Chak Kwan, an investor of the Maxim Fund; and

(5)  Mr Ho Wai Shing Steven, an investor of the Maxim Fund.

18.  The oral evidence was undisputed and corroborated by documents.  The background mentioned above and the factual contentions of the SFC, this court finds, are facts.  This court adopts counsel’s summary of the SFC’s investigation as follows.

19.  During its investigation, the SFC found, amongst other things, that the Maxim Fund was promoted by the defendants on the Websites, social media and at certain marketing seminars held in Hong Kong (“the Seminars”).  The SFC also found out how the defendants operated.

The Internet

20.  The Official Website and its various sub-pages contained the following contents:

(1)  At http://www.maximtrader.com/about-maxim-trader/:

“Maxim Trader is managed by Maxim Capital Limited, a subsidiary of Royale Globe Holding Inc. (Formerly known as Royale Group Holding Inc.)  which is a public listed Financial and Investment company.

Maxim Trader is a financial trading facilitator, market research house with operations throughout Europe and more recently in the emerging financial powerhouses of Asia like China, Hong Kong, Japan, South Korea & South East Asia. Maxim Trader was founded by a group experienced and passionate traders, financial analysts and actuaries whose aim was to provide the best trading solutions for the trading industry, which includes establishing its own fund management programme and proprietary accounts for the benefit of its clients.

...

Our Mission

Maxim Trader works towards establishing a constitution that serves to magnify the principle of leverage thus elevating both the organization and clients to a financial vantage point.  As a result, we capitalize on the pooled resources, coupled with proven fund management techniques and expertise to generate wealth and create value allowing our people, partners, stakeholders and clients to prosper continuously.”

(2)  At http://www.maximtrader.com/press-release-la-daily-news/, an article released on 13 November 2012 said:

“Maxim Capital Limited, http://www.maximtrader.com, has today announced the launch of a new securities management service, Maxim Trader and their bullish expansion into Asia.

...

Managed by Maxim Capital Limited, subsidiary of Royale Group Holding Inc. which is a public listed Financial and Investment Trusts Company that is listed in USA, Maxim Trader is reportedly consist of top investment professionals with outstanding academic backgrounds combined with years of vast trading experiences.

…

Also regulated under New Zealand Financial Service Provider (FSP), Maxim Capital says, as it continue to maintain its top financial trading facilitation and market research house status as it continues to wade its way through throughout Europe and Asia, has also established a trustee agreement with Premium Insured Limited, one of the leading third party trust management company dedicated in providing trustee service to the global market.”

(3)  At http://www.maximtrader.com/about-us-2/our-values/:

“Safety

Maxim Trader takes absolute precaution towards protecting our clients’ assets.  All of our fund management programs are well planned and managed by experienced fund managers with decades of experience and knowledge.”

(4)  At http://www.maximtrader.com/risk-disclosure/:

“Risk Disclosure

Maxim Capital Limited (the “Company”)  is an online trading brokerage (as defined below)  financial service provider, licensed in New Zealand…”

(5)  At http://www.maximtrader.com/terms-of-business/:

“Terms of Business

These Terms of Business constitutes to the Client agreement, which entered by and between Maxim Capital Limited, a Financial Service Provider licensed in New Zealand (the “Company”)  and the person who applied to open a trading account at the Company (the “Client”), according to the Company’s terms and conditions contained in this agreement.

…

5. Trading

5.1   The Trading Platform supplied by the Company enables trading in foreign exchange rates of different currencies, commodities, CFDs and any other service provided by the company (all hereof, currencies)…”

(6)  At http://www.maximtrader.com/trading-2/maxim-trader-metatrader-4/:

“The multi-award winning trading platform MetaTrader (MT4)  of Maxim Trader, is a gateway for professional traders, whilst it’s extremely powerful but surprisingly easy to use.

The MetaTrader (MT4)  trading software is the world’s most popular platform for trading in the foreign exchange market.

This platform offers advantages:

•  Simple to use. Easy to understand features and tools.

•  Live, real-time rates.

•  Multilingual trading platform available in more than 20 languages.

…

•  Direct connection to the analysis of exclusive Maxim Trader.

  …”

(7)  At http://www.maximtrader.com/trading-2/leverage-margin/:

“Maxim Trader offers the possibility to operate with leverage of up to 500:1, this means that for an open position of 100,000 worth of the base currency, a trader requires just a minimum margin of 200.”

(8)  At the end of each sub-page of the Official Website:

“Ready to Trade?

To start trading via Maxim, download our Metatrader platform from the option below and own an individual account today with us.  The whole process is simple and takes approximately 5 minutes.”

21.  In the sub-page http://www.maximtrader.biz/admins.215_info-in-thailand.html of the Business Website, there were the following passages:

“The company

...

OFFICE:

Hong Kong

Address: 165, Oi Ping House, Oi Tung Estate, Shaukeiwan V5L 3B6, Hong Kong

Tel: (+852)  5808 3536

...

About Maxim Trader

Introduction to Maxim Broker

•  A subsidiary of Rohat Resources Inc. is a public listed Financial and Investment Company in United States

•  Maxim Capital Limited is duly registered with the Financial Service Provider Registry in New Zealand and also one of the member of the Financial Dispute Resolution Scheme as obligated by law.

•  A financial trading facilitator and market research house with operations throughout Europe and more recently in the emerging financial powerhouses of Asia like China, Hong Kong, South Korea & South East Asia.

•  Founded by a group experienced and passionate traders, financial analysts and actuaries whose aim was to provide the best trading solutions for the trading industry, which includes establishing its own fund management programme and proprietary accounts for the benefit of its clients.”

Social media

22.  The defendants used a number of Facebook pages to publicise their businesses. One of those at http://www.facebook.com/maximtraderphilippines provided a hyperlink to a webpage at http://www.slideshare.net/slideshow/embed_code/26783851. The link led to a set of PowerPoint slides entitled “Maxim Trader trust ● integrity ● freedom” which stated that:

(1)  Maxim Capital was a subsidiary of Giant Royal Group Holdings Inc., which was a public listed financial and investment trust company in the United States;

(2)  It was regulated by the Belize International Financial Services Commission (“Belize IFSC”); and

(3)  the Hong Kong office address of Maxim Trader was at 165 Oi Ping House, Oi Tung Estate, Shaukeiwan “V5L 3B6” Hong Kong, and that the telephone number was (852)  5808 3536.

The Seminars

23.  Various marketing seminars were organized by or on behalf of the defendants to promote them and the Maxim Fund in Hong Kong.  These seminars included one held on 16 July 2014 (“the 16 July 2014 Seminar”)  at a location in Wan Chai.

24.  At the seminar, various slides were shown and discussed by a Mr Lo Yiu Fai.  They introduced the Maxim Fund in respect of which individuals might enter into contracts for a continuous period of 18 months by investing sums of US$1,000, US$5,000, US$10,000, US$20,000 or US$30,000 or above to receive a monthly return of up to 3 to 8% of the sums invested.  Individuals would have the option of taking back the account balance at the end of the contractual periods.  They also introduced www.myfxbook.com (“the myfxbook Site”)  as an online automated forex trading account analysis tool through which one can check and confirm the authenticity of the Maxim Trader persons’ forex trading accounts.  It was represented that the defendants’ team had outstanding performance in managing funds in the previous three years.

25.  The attendees of the 16 July 2014 Seminar were provided with a leaflet entitled “Maxim Trader — Development Course” which contained the following contents:

“Maxim Trader is managed by Maxim Capital Limited part of Royale Globe Holding Inc., a public listed Financial and Investment company in the United States, market research house with operations throughout Europe and more than 25 emerging financial powerhouses like China, Hong Kong, Japan, South Korea, Australia, New Zealand, India, South Africa, Brazil, and South East Asia. Maxim Trader was founded by a group of experienced and passionate traders, financial analysts and actuaries whose aim was to provide the best trading solutions for the investors…”

26.  The attendees were also provided with a leaflet entitled “MAXIM Trader”, which contained the following contents:

“Maxim Trader is managed by Maxim Capital Limited, part of Royale Globe Holding Inc., a public listed Financial and Investment company in the United States.

…

What can Maxim Trader offer?

Your potential income at Maxim Trader is broadly defined in 3 main categories: Trading Profit, Entry package entitlements and Affiliate bonuses.

1. Trading Profit

With Maxim Trader, your basic income is derived from the profits generated by the trades that our fund management or algorithmic software executes. In addition, you have the full freedom to apply your own trading techniques and generate profits from trading as well.

2. Entry Package entitlements

Maxim Trader offers you at attractive array of entry packages to benefit. The entitlements derived purely from becoming a member have a value that far outweighs the costs. This income is your entitlement as a member.

3. Affiliate Bonus

Joining Maxim Trader will allow you access to large quantities of company resources and thus you will be able to create value added through the best platform.”

27.  Mr Chong, main investigation officer of the SFC, attended this seminar, and gave evidence in respect of, amongst his investigation, what happened during that seminar.

28.  Another seminar was held by or on behalf of the Maxim Trader Persons on 5 February 2015 (“the 5 February 2015 Seminar”)  at the same location as before.  There the Maxim Fund was again promoted (except that the package involving an investment amount of US$1,000 with a monthly return up to 3% was not mentioned).  The speaker also claimed that the defendants would pool the investors’ monies and divided them into about 250 trading accounts, and that the value of the assets under management in each of those accounts ranged from US$5 million to US$10 million. It was also claimed that the Maxim Trader was not regulated by the SFC because they were offshore and no licence was required while the performance of the Maxim Fund could be and had been verified by the myfxbook Site mentioned above.

29.  Mr Ip, who eventually did not make any investment, attended this seminar.  He gave evidence in respect of what happened then and there.

Marketing and promotional materials

30.  On 29 January 2015, the SFC searched the Maxim Club and found, amongst other things, some 80 PowerPoint slides (“the Club PowerPoint Slides”)  and a set of 71-page promotional booklet (“the Booklet”)  relating to the Maxim Trader.

31.  The slides contained the following contents:

“Royale Globe Holding Inc. (ROGP)

Formerly known as Rohat Resources Inc. is a public listed Financial and Investment Company in the United States and one of the fastest growing mineral mining companies in Asia.

Founded in 2006 and headquartered in Bangkok, Thailand.

In recent years Royale Group Holding Inc. has ventured into different sectors such as Finance & Investments, Agriculture, Hotels & Resorts and Property Development in Asia.

Royale Group Holding Inc. enters the new millennium in a true spirit of mutual growth and respect with its valued investors and international associates.  In the year of 2013, Royale Group Holdings plans to be listed on the NASDAQ and aims to help its investors make stellar profits.”

32.  The slides also referred to the Maxim Fund and the data of Maxim Trader purportedly extracted from the myfxbook Site, and represented that the funds managed by Maxim Trader made substantial financial gain in investment.

33.  The slides also said:

“ Maxim’s Forex Policy

•  Members invest in Maxim’s Funds and Maxim in turn invests in Forex Trading via International Forex Brokers.

•  Maxim starts every Fund with US$5M and once the Fund grows to US$10M, the fund is closed.

•  The Fund will then be split into 2 Funds of $5M each and the trading starts again.

•  By keeping each Fund at US$5M, Maxim’s risk is reduced and the Fund is easier to manage.”

34.  They purportedly stated the alleged performance of funds managed by Maxim Trader in various countries in various periods in 2013 and 2014, and concluded:

“ Conclusion

•  Maxim pays Bonuses and Monthly Performance Returns to its members using Actual Forex Trading Profits.

•  The figures that you saw in the earlier slides are ACTUAL PROFITS.

•  It is not uncommon for a well managed Forex Trading company to record a profit of around 15% per month.”

35.  As for the Booklet, the following content was printed:

“Company Introduction

Maxim Trader is managed by Maxim Capital Limited part of Royale Globe Holding Inc., a public listed Financial and Investment company in the United States.”

…

“Company Introduction

Maxim Trader is managed by Maxim Capital Limited part of Royale Globe Holding Inc., a public listed Financial and Investment company in the United States.

Maxim Trader is a financial trading facilitator, market research house with operations throughout Europe and more than 25 emerging financial powerhouses like China, Hong Kong, Japan, South Korea, Australia, New Zealand, India, South Africa, Brazil, and Southeast Asia.  Maxim Trader was founded by a group of experienced and passionate traders, financial analysts and actuaries whose aim was to provide the best trading solutions for the investors, which includes establishing its own fund management program and propriety accounts, and providing clients access to financial instruments at its best trading conditions.”

…

“Royale Globe Holding Inc. is the parent company of Maxim Capital Limited and is a public listed Financial and Investment Company in the United States. Founded in 2006, Royale Group Holding Inc. has rapidly built huge assets and businesses across Asia. Its investment has ventured into different sectors such as Gold Mining, Agriculture, Hotel, Resorts & Property Development and Financial & Investment and various other industry types.

One of the flagship projects under Royale Globe Holding Inc. is the Sokor Gold Field spans an area of 5,000 acres and is located in the state of Kelantan, Malaysia which is a joint venture with Malaysia’s Kelantan State Government. The Sokor Gold Field Project is poised to become one of the largest gold mines in Malaysia with the potential output of more than 50 metric tons of gold worth approx. USD2-3 billion.

Additionally, Royale Globe Holding Inc. is also ventured into agriculture industry. It is located in the central part of the Malaysian, Cameron ecological gardens. This project has planted crops of a wide range of categories, the most valuable being agarwood and eucalyptus. Currently, 300,000 agarwood have been planted and covering an area of nearly 300 acres. It is expected in the short term to plant 700,000 trees in five years, the market value of about $2 billion. Eucalyptus planting area of about 4500 acres, and because of its rapid growth, it takes only six years to grow up to 12 inches in diameter at breast height, 100 feet tall with a return on investment of nearly $2 billion.

And currently in Thailand, Royale Globe Holding Inc. is busy building a new city district worth more than US$45 million, the project will combine high-end brand of hotel and tourism industry, ultimately to operate hotel chain all over the world.

The potential value of the investments that Royale Globe Holding Inc. are involved in will yield in excess of US$6 billion. It can be said, that Royale Group Holding Inc. is the fastest growing, largest asset acquiring, most widely diversified business spread and the best developing investment company of international first-world first-class enterprise in Asia.”

…

“Your potential income at Maxim Trader is broadly defined in 3 main categories: Trade income, Entry package entitlements and Affiliate bonuses. This is a non-exhaustive representation due to seasonal promotions and rewards through performance indicators.

1. Trade Income

With Maxim Trader, your basic income is derived from the profits generated by the trades that our fund management or algorithmic software executes. In addition, you have the full freedom to apply your own trading techniques and generate profits from trading as well.

2. Entry Package entitlements

Maxim Trader offers you at attractive array of entry packages to benefit. The entitlements derived purely from becoming a member have a value that far outweighs the costs. This income is your entitlement as a member.

3. Affiliate Bonuses

Business synergy is a prerequisite to success and we recognize and reward all our affiliates and partners. Our business can be your business as we provide a platform for income generation.”

…

“Fund Management

…

Maxim Trader has sought to structure an investment which addresses all the challenges which investors face today. The Maxim Trader fund management provides investors with a low risk investment, competitive charges, aims to make absolute, positive returns irrespective of the market conditions with a safety of their investment and added capital protection.”

…

“Fund management advantages of Maxim Trader

1. Execution

Maxim Trader has the technology to hedge instantly any trades directly with other Liquidity Providers. Maxim Trader is currently connected to Bank of America, Commerzbank, Nomura, Barclays, Currenex, SEB, Deutsche Bank, JP Morgan, SocieteGenerale, UBS, Goldman Sachs, Citibank, BNP Paribas, HSBC Bank, HotspotFXI, Lava — FX All Morgan Stanley and other liquidity providers. All trades are usually executed in milliseconds.

2. Low Spreads

Maxim Trader has the integrated liquidity of the world’s leading foreign exchange banks and ECNs. Thanks to these numerous banks and service providers, Maxim Trader has the deepest source of liquidity in the industry resulting in tight spreads.

3. ECN Liquidity

The integration of the world’s major banks allows Maxim Trader to execute large orders, which can instantly be hedged within the Liquidity Providers’ network. For example, our fund managers could trade in one click up to 200 million USD.

4. Market Depth

Maxim Trader has the opportunity to access the market depth monitor. This tool provides the fund managers with information about the market structure for each currency pair. This data allows to anticipate the full execution before placing their order.

5. Liquidity Providing

Our fund managers can place bids/offers in the market.

The place bid/ask type orders allow fund managers to act as liquidity providers by placing individual bids and offers, right into the market.  Bids/ Offers are very similar to limit orders and are used to buy or sell a currency at a specified price or better.  In addition to limit orders, Bids/Offers have several advantages.  As all Bids/Offers are placed directly in the market, they can be taken by other liquidity consumers, thus allowing our fund managers to avoid a spread cost.  Additionally, our fund managers can specify the time period (Good Till Canceled/Good For/Good Till)  allowed for the system to process the order. All together, these features make Bids/Offers valuable tools for intraday trading.”

How the Maxim Fund operated

36.  The SFC’s investigation reveals that the operation of the Maxim Fund was essentially as follows:

(1)  Individuals interested in becoming investors of the Maxim Fund had to open a Maxim Trader account (“MT Account”)  by registering, whether by themselves personally or through other persons on their behalf at the Partner Website.

(2)  The Partner Website provided bank account information held in the name of Global Transaction Services (HK)  Limited in Czech Republic.  However, many Investors indicated that they deposited their investment principals to other bank accounts designated by the persons who introduced and promoted the Maxim Fund to them.  Some other Investors indicated that they remitted their investment principals to a Polish bank account held in the name of Global Transaction Services (UK).

(3)  After funds were deposited by the Investors, their MT Accounts would be activated and the investment funds which were deposited into the Maxim Fund would then be reflected in the Investor’s MT Account for the Investor to sign up for or join one of the investment packages on offer.  The lock-in term of investment packages was typically 18 months.  Depending on the amount deposited, the monthly returns were also different.  In general, the monthly returns ranged from 3% to 8% of the investment principal.

(4)  After signing up for the desired investment package, the MT Account would show details of the investment package, including its performance and the amount of profits under the page entitled “Fund Management Contract”.  A Private Investment Management and Risk Disclosure Agreement purportedly entered into between D1 and the Investor (“Investment Agreement”)  would be available in the MT Account of the Investor and could be downloaded by the Investor.  Generally speaking, the Investors were not required to sign the Investment Agreement (although some of them did).

(5)  The precise terms of the Investment Agreements provided to the Investors slightly varied from one to the other, Schedule One of a typical Investment Agreement contained the following provision:

SCHEDULE ONE

(Packages Introduced by the Introductory Broker)

ITEM	PACKAGE Basic	PACKAGE Gold	PACKAGE Platinum	PACKAGE VIP	PACKAGE VVIP
Lock-in Term	18 Months	18 Months	18 Months	18 Months	18 Months
Lock-in Amount from Capital	100%	100%	100%	100%	100%
Capital Shortfall Refund	Yes	Yes	Yes	Yes	Yes
Deposit Amount	USD1,000	USD5,000	USD10,000	USD20,000	USD30,000 – USD 100,000
Performance Return Up To	3%	5%	6%	7%	8%

(6)  Schedule Two of the Investment Agreement provides contained the following terms:

“1. Appointment of Services

You appoint the Adviser to manage an investment portfolio for you effective upon signing this agreement...

2. Services Offered

The Adviser will make all decisions to buy, sell or hold securities, cash or other investments for your account at their sole discretion and without the need to consult you first. Such securities may include, but are not limited to, currency exchange, commodities, precious metals and stocks. You give the Adviser full power and authority to carry out these decisions by giving instructions, on your behalf, to brokers and dealers and the Custodian for your account. You also authorize the Adviser to provide a copy of this agreement to any broker or dealer with or through which transactions for your account are to be effected as evidence of their authority under this agreement.

…

4. Performance and Terms of Trading

Client agrees to place funds in United States Dollars, in the Basic Package, Gold Package, Platinum Package, VIP Package or VVIP Package as in Schedule 1 for the Adviser to start trading. The funds and all future top-ups to the account will all be allocated to the “Balance” of the Client’s account. All profits realized are debited into the “Balance” of the Client’s account and can only be withdrawn on the first working week of the month provided that the “Balance” in the Client’s account is more than the initial fund invested.”

(7)  Upon accrual of the monthly returns, the Investors would be able to check the status of the monthly returns through the MT Account.

(8)  Some Investors who successfully referred new investors were awarded referral bonuses ranging from 6 to 10% depending on the investment amount of the new investor.

(9)  Prior to early 2015, the Investors could receive the monthly returns through their personal bank accounts by withdrawing the monthly returns from the MT Accounts, although some Investors indicated that they did not withdraw any monthly returns. Further, some Investors received the monthly returns directly from their friends who introduced them to the Maxim Fund.

(10)  On or about 1 December 2014, an announcement was made on the Partner Website to the Investors of the Maxim Fund to create individual accounts at iAccount through the hyperlinks in the Official Website to receive monthly returns purportedly distributed under the Investment Agreements from the Maxim Capital Account.

(11)  From early 2015 and up till 1 July 2015, the Investors could only receive monthly returns purportedly distributed under the Investment Agreements from the Maxim Capital Account through their individual accounts at iAccount. The Investors could either withdraw the monthly returns in cash from their accounts with iAccount, or maintain the credit balance in the accounts.

(12)  On or about 30 June 2015, an announcement was made in the Partner Website to notify the Investors that on 1 July 2015, all the remaining funds retained under the Investment Agreements would be converted into shares of ROGP at US$0.8 per share. It was claimed that ROGP would be listed on the NYSE in the first quarter of 2016.

(13)  Since 1 July 2015, the Investors have not received any funds from the Investment Agreements, whether from the Maxim Capital Account or otherwise.

37.  The SFC’s investigations revealed that:

(1)  The defendants were never licensed by the SFC to carry on any regulated activity as defined in section 1 of Part 1 of Schedule 1 to the SFO.

(2)  Various representations purportedly made in the Websites and the social media, and during the Seminars and in the materials distributed during these seminars were inaccurate.  For example:

(a)  The Hong Kong contact telephone number is fictitious.  Search revealed that the telephone number was subscribed by a Hu Keqing through a company called Rexx Trading Co Ltd since 2 June 2014.  Neither Hu Keqing nor Rexx Trading Co Ltd appears to be connected to the defendants.

(b)  The Hong Kong office address at Oi Tung Estate is fictitious.  The address ends with a fake area code as no area or post code is used in Hong Kong.  Oi Tung Estate is a public housing estate and it is improbable, if not inconceivable, that a financial services company would or could operate from such a housing unit.  The information obtained by the SFC from the management office of the Estate on 21 September 2015 confirmed that Unit 165 does not even exist.

(c)  The defendants were and are not financial service providers registered nor licensed in New Zealand.  Nor was and is Maxim Capital licensed by Belize IFSC or any other competent authority in Belize to engage in trading of foreign exchange or any other regulated international financial services.  It was not even registered as an international business company in Belize.

(d)  Maxim Capital was and is not a subsidiary of ROGP.

(e)  The foreign exchange trades which were purportedly conducted by Maxim Capital, and their performance, cannot be verified by the myfxbook Site at all.

(3)  ROGP is a shell company incorporated in Nevada, the USA.  It has never been listed on the NYSE.  Since 8 April 2016, trading of shares of ROGP on the OTC Link system was suspended by the US Securities and Exchanges Commission which lasted until 21 April 2016.  With effect from 4 December 2017, ROGP shares have been delisted from the OTC Link.  The Investors’ investments were effectively converted into worthless shares.

38.  The two main investigation officers gave details of such investigation results.

Section 109(1) of the SFO

39.  Section 109(1) of the SFO provides:

“(1)  Subject to subsections (3) to (6), a person commits an offence if he issues, or has in his possession for the purposes of issue –

(a)  an advertisement in which to his knowledge –

(i)  a person holds himself out as being prepared to carry on Type 4, Type 5, Type 6, or Type 9 regulated activity; and

(ii)  the person is not licensed or registered for such regulated activity as required under this Ordinance; or

(b)  any document which to his knowledge contains such advertisement.”

40.  According to section 102(1) of SFO:

(1)  “Advertisement” is defined to include “every form of advertising, whether made orally or produced mechanically, electronically, magnetically, optically, manually or by any other means”.

(2)  “Document” is defined to mean “any publication (including a newspaper, magazine or journal, a poster or notice, a circular, brochure, pamphlet or handbill, or a prospectus) – (a) directed at, or the contents of which are likely to be accessed or read (whether concurrently or otherwise) by the public; and (b) whether produced mechanically, electronically, magnetically, optically, manually or by any other means.”

(3)  “Issue” includes “publishing, circulating, distributing or otherwise disseminating the material or the contents thereof, whether - (a) by any visit in person; … (f) by way of sound…; or (h) by any other means, whether mechanically, electronically, magnetically, optically, manually or by any other medium, or by way of production or transmission of light, image or sound or any other medium...”

41.  According to Part 1 of Schedule 5 to the SFO, regulated activities include:

(1)  Type 1: dealing in securities (which means “making or offering to make an agreement with another person, or inducing or attempting to induce another person, to enter into or to offer to enter into an agreement (i) for or with a view to acquiring, disposing of, subscribing for or underwriting securities; or (ii) the purpose or pretended purpose of which is to secure a profit to any of the parties from the yield of securities or by reference to fluctuations in the value of securities”.  “Securities”, according to Part 1 of Schedule 1, include “(a) shares, stocks, debentures, loan stocks, funds, bonds or notes of, or issued by a body, whether incorporated or unincorporated, or a government or municipal government authority; (b) rights, options or interests (whether described as units or otherwise)  in, or in respect of, such shares, stocks, debentures, loan stocks, funds, bonds or notes… (e) interests, rights or property, whether in the form of an instrument or otherwise, commonly known as securities…” but does not include shares, debentures of a company that is a private company within the meaning of s.11 of the Companies Ordinance.

(2)  Type 9: asset management (which includes “securities or futures contracts management”).

42.  “Holding out” for the purpose of section 109(1)(a)(i) has been held to include making representation or pretension: see SFC v An unknown person or persons purporting to carry on a securities and/or futures trading business known as BROADSPAN SECURITIES and using the website www.broadspansecurities.com & Ors [2021] HKCFI 1444 at §21.

43.  In the course of the marketing activities mentioned above, the defendants have made the following representations:

(1)  Maxim Capital announced the launch of a new securities management service, namely Maxim Trader in the press release issued on the Official Website on 13 November 2012.

(2)  Maxim Trader was founded by a group of experienced and passionate traders, financial analysts and actuaries whose aim was to provide the best trading solutions for the trading industry, which includes establishing its own fund management programme and proprietary accounts for the benefit of its clients.

(3)  Maxim Trader capitalized on the pooled resources, coupled with proven fund management techniques and expertise to generate wealth and create value allowing our people, partners, stakeholders and clients to prosper continuously.

44.  I agree with the SFC that the defendants were purporting to offer asset management services, which fell within Type 9 regulated activities.  That they were not licensed or registered to do.

45.  I also accept the SFC’s contention that the defendants’ representations constituted means of issuing “advertisements” caught by section 109(1)  of the SFO.  They were contained in the Websites and social media, orally made by the speakers for the defendants during the Seminars, such as the 16 July 2014 Seminar as well as contained in the materials distributed during the Seminars and in the possession of the defendants at the Maxim Club.  They all served to promote the asset management services that the defendants purported to provide and hence falling within the definition of advertisement in section 102. 

46.  That the defendants conducted the affairs mentioned above whilst knowing that they were not licensed or registered to carry out Type 9 regulated activity is indisputable in the circumstances. It is clear that in the said advertisements mentioned above, the defendants were holding themselves out as being prepared to carry on Type 9 regulated activity in breach of section 109(1)(a).  Inference is readily drawn in respect of the breach of section 109(1)(b), insofar as the materials found to be in the possession of the defendants are concerned.  See SFC v An unknown person or persons purporting to carry on a securities and/or futures trading business known as Cardell Ltd Limited and/or Cardell Company Ltd Limited and using the website www.cardell-limited.com & Ors[2019] 1 HKLRD 702; Broadspan Securities (above).

47.  From the perspective of accessory to Maxim Trader’s contravention, by creating the Maxim Capital Account to handle funds relating to the operations of the Maxim Fund and/or the moneys obtained, handled or managed by the defendants, Maxim Capital aided, abetted, or otherwise assisted, counselled, or procured or conspired with Maxim Trader in the latter’s contravention of section 109(1) of the SFO, or alternatively knowingly involved, directly or indirectly, in the latter’s contravention: see Broadspan Securities (above) at §§41-44; Cardell at §25.

Section 114 of the SFO

48.  The relevant parts of s.114(1) and (2) of the SFO provide:

“(1)  Subject to subsections (2), (5) and (6), no person shall –

…

(b)  hold himself out as carrying on a business in a regulated activity.

(2)  Subsection (1) shall not apply to –

(a)  a corporation licensed under section 116 or 117 for the regulated activity;

(b)  an authorized financial institution registered under section 119 for the regulated activity; or

(c)  a person authorized under section 95(2) for the regulated activity.”

49.  The component of “holding out” under this section shares the same definition as in section 109. Whether a person holds himself out as carrying on a business is a question of fact and degree in the circumstances of the case: see Broadspan Securities at §22 (adopting Lee Yee Shing v Commissioner of Inland Revenue [2008] 3 HKLRD 51 at §38).

50.  The discussion above in respect of the defendants’ holding out by representations offering services in relation to asset management, which is a Type 9 regulated activity and in respect of which they were not licensed, registered or authorised to do so, refers.  Further, the defendants represented during their marketing activities that the trading platform supplied by Maxim Trader would enabled trading in foreign exchange rates of different currencies, commodities, contract for differences and any other service provided by it.  Schedule Two of the Investment Agreement also provides that the defendants would “make all decisions to buy, sell or hold securities… at their sole discretion…” and such securities may “include, but are not limited to, currency exchange, commodities, precious metals and stocks”. The defendants were therefore holding themselves out as carrying on activities of dealing in stocks, funds and interests, rights or property, commonly known as securities, which are “securities” under Part 1 of Schedule 1 of the SFO.  Hence Type 1 regulated activity in respect of which the defendants were not licensed, registered or authorised to do under the SFO.

51.  In Cardell (at §23) and Broadspan Securities (at §§35-36), the court adopted a similar approach and found that the defendant which operated the websites and promoted and offered their services in relation to securities and/or futures contracts to the public through the websites, by emails and cold calls, had contravened section 114(1)(b)  of the SFO.

52.  I also accept the contention of the SFC on the accessory approach.  By creating the Maxim Capital Account to handle funds relating to the operations of the Maxim Fund and/or the moneys obtained, handled or managed by the defendants, Maxim Capital aided, abetted, or otherwise assisted, counselled, or procured or conspired with Maxim Trader in its contraventions of section 114(1)(b) of the SFO, or alternatively had been knowingly involved, directly or indirectly in Maxim Trader’s contraventions. Again the discussion in respect of the accessory approach above refers.

Conclusion on liability

53.  Whilst the causes of claim against the defendants are based on the provisions of the SFO, which provide for criminal liability and penalty for contravention, the proof of them for the purpose of seeking the relief discussed below, I accept, remains to be discharged on the civil standard.  In view of the evidence, including those specifically discussed above, I find that the claim on the basis of the defendants’ contravention of sections 109(1) and 114(1) of the SFO is proved.

Section 213(2) of the SFO

54.  The claim for relief, and the SFC’s locus to lodge such a claim, is based on section 213 of the SFO.  It says:

“(1)  Where –

(a)  a person has –

(i)  contravened –

(A)  any of the relevant provisions;

…

(ii)  aided, abetted or otherwise assisted, counselled or procured a person to commit any such contravention;

…

(iv)  directly or indirectly been in any way knowingly involved in, or a party to, any such contravention;

…

(b)  it appears, whether or not during the course or as a result of the exercise of any power under Part VIII, to the Commission that any of the matters referred to in paragraph (a)(i) to (v) has occurred, is occurring or may occur,

the Court of First Instance, on the application of the Commission, may, subject to subsection (4), make one or more of the orders specified in subsection (2).

(2)  The orders specified for the purposes of subsection (1)  are –

(a)  an order restraining or prohibiting the occurrence or the continued occurrence of any of the matters referred to in subsection (1)(a)(i) to (v);

(b)  where a person has been, or it appears that a person has been, is or may become, involved in any of the matters referred to in subsection (1)(a)(i) to (v), whether knowingly or otherwise, an order requiring the person to take such steps as the Court of First Instance may direct, including steps to restore the parties to any transaction to the position in which they were before the transaction was entered into;

(c)  an order restraining or prohibiting a person from acquiring, disposing of, or otherwise dealing in, any property specified in the order;

(d)  an order appointing a person to administer the property of another person;

…

(f)  for the purpose of securing compliance with any other order made under this section an order directing a person to do or refrain from doing any act specified in the order;

(g)  any ancillary order which the Court of First Instance considers necessary in consequence of the making of any of the orders referred to in paragraphs (a) to (f).

…

(4)  The Court of First Instance shall, before making an order under subsection (1) …, satisfy itself, so far it can reasonably do so, that it is desirable that the order be made, and that the order will not unfairly prejudice any person.

…

(8)  Where the Court of First Instance has power to make an order against a person under subsection (1) …, it may, in addition to or in substitution to such order, make an order requiring the person to pay damages to any other person.”

55.  “Relevant provisions” under section 213(1)(a)(i)(A) is defined in Schedule 1 to the SFO to mean, amongst others, the provisions of the SFO.

56.  The court in SFC v Qunxing Paper Holdings Ltd (No 2) (“Qunxing”) [2018] 1 HKLRD 1060 explained the rationale behind the remedies available under section 213:

(1)  The purpose of section 213 is to provide a statutory regime whereby the SFC, as regulator, can take action to obtain civil remedies for the benefit of investors, who may otherwise be deterred by cost and other considerations from instituting legal proceedings individually to obtain redress for their relatively small losses. The section creates a substantive statutory cause of action which is vested in the SFC (see §50).

(2)  Section 213(1) confers a discretion on the court by providing that it may on the application of the SFC, make one or more of the orders specified in subsection (2).  The jurisdiction arises once the court finds that the matters set out in s.213(1)(a)  have occurred.  The discretion conferred to the court is very wide.  The only express fetter on this discretion is subsection (4), which requires the court to satisfy itself on two matters, so far as it can reasonably do so, before making an order, namely: (i) that it is desirable that the order be made, and (ii) that the order will not unfairly prejudice any person (see §56).

(3)  A fairly broad-brush approach has to be adopted where necessary (see §57).

(4)  The primary purpose of the kind of order sought must be protection of the investing public (see §62).

(5)  In the ultimate analysis, where one is concerned with innumerable sale and purchase transactions and finite and limited resources for the payment of compensation, a robust approach has to be adopted (see §67).

57.  As found above, the defendants have contravened the relevant provisions of the SFO, and are persons caught by sections 213(1)(a)(i)(A) and/or (2)(b) for the purpose of consideration of relief.  As set out earlier, various reliefs are prayed for in the present case.

Declarations

58.  The declarations sought are essentially based on what were claimed and granted by the court to the SFC in previous cases including Cardell and Broadspan Securities.

59.  In Cardell, the court (at §27) made clear that the declarations sought by the SFC should be made in order to put matters beyond doubt that the Court has jurisdiction to make one or more of the orders specified in section 213(2) of SFO, in particular, the order under section 213(2)(b), subject to the requirement of section 213(4)  that it is desirable that the orders be made and the orders will not unfairly prejudice any person.  The court in Broadspan Securities (at §56) considered it desirable to do the same even in a default judgment application in the absence of trial.

60.  I am satisfied that a similar conclusion should be drawn in the circumstances of the present case.

Prohibitory injunctions

61.  There is no suggestion or evidence of risk or propensity that the defendants would continue their conduct as of or after today.  That said, this court notes the broad-brush approach of the court in Cardell (at §§28-29)  and Broadspan Securities (at §57) in considering that it would be desirable to order the restraint of the defendants from contravening or continuing to contravene the provisions of the SFO, and that the injunctions will not unfairly prejudice any other person.

62.  On this basis, and for the fullest protection of the investing public, I am prepared to grant a similar order: see also Qunxing (at §62).

Injunction under section 213(2)(c) of the SFO

63.  The basis for the injunction sought by the SFC pursuant to section 213(2)(c) is to aid the enforcement of judgment, in view of the modus operandi of what the defendants have perpetrated, which suggests a clear risk of dissipation unless restrained in appropriate terms.

Restitutionary order

64.  In SFC v C [2009] 4 HKLRD 315, the court explained (at §36) the nature and purpose of a restitutionary order under section 213(2)(b):

“… Section 213(2)(b) enables an order to be made that would restore all the parties to the transaction to their respective former positions. In other words, it is restitutionary in nature and, in conjunction with an order under s.213(2)(c), would provide compensation to those who have sustained losses through the wrongdoing in question…”

65.  An order under s.213(2)(b) is not confined to making full restitution in specie but permits an order to be made requiring restoration of the parties to their relevant financial position prior to the transactions impugned: see SFC v Tsoi Bun[2014] 2 HKLRD 1 at §§11-13.

66.  Applying the above principles, the court in Cardell and Broadspan Securities granted the restitutionary order sought by the SFC, which is similar to those sought in this action.

67.  The SFC proposes the following analysis of the circumstances of the present case:

(1)  The total amount recoverable from the defendants would likely not suffice restoring all the affected investors to their pre-contractual position.  The total amount in the bank accounts now frozen and recoverable amounts to just about 22% of those traceable to the investors.

(2)  The most appropriate form of restitution order would be to distribute the amounts frozen in the bank accounts to the complainants/victims on a pro rata basis, i.e. by dividing the amount left in the bank accounts among the complainants/victims by reference to the amounts they respectively remitted to the defendants.

(3)  Although the proposed restitution order would not fully restore the victims to their pre-transaction positions, it is nevertheless desirable because it provides compensation to the victims to the extent that is reasonably practicable.  The proposed restitution order is the most cost effective and fairest order to make.

(4)  It is also obvious that the order will not unfairly prejudice any other person since the victims are simply getting back a proportion of the monies they remitted into the bank accounts in question.

68.  The broad-brush approach adopted by the court entails the consideration of whether it is desirable and whether there will be unfair prejudice to anyone.  So long as the criteria are met, the exercise of the discretion of the court does not entail prior consultation by the SFC with all or the majority of the affected investors on its proposal to the court. Otherwise, overall fairness and cost-effectiveness will be compromised especially when the enrolment of the affected investors has not closed.

69.  As to how the calculation of the sums payable to the investors should be carried out, the SFC proposes the following mechanism:

(1)  Generally, the fair way to calculate the sums payable to the Qualified Investors is to deduct the sum of the total monthly returns, the total principal sum, the total sum of bonuses and the total proceeds (if any)  from the sale of ROGP shares as claimed to have been received (in cash)  by each investor from the total actual amount of cash he or she paid for the Maxim Fund (except so far one investor who had indicated a net sum representing the difference between the amounts he paid and received and the SFC proposes that the indicated net sum shall be the amount payable to that investor).

(2)  Where an investor does not provide information on the monthly returns received or claims that he had received monthly returns but could not recall the total amount actually received, the SFC proposes that the professional administrator to be appointed by the Court, as discussed below, shall calculate a notional amount of monthly returns that the investor should have received with reference to the amount of his investment and the return rate.  When applying the formula mentioned above, the SFC proposes that the administrator should adopt the notional amount of monthly returns as if it was the amount received by the investor and the assumptions for calculating the notional amount of the monthly returns as set out in Schedule 1 to the Amended Statement of Claim.

(3)  For various reasons, full verification of the information provided by the Qualified Investors may not be feasible.  For instance, they did not download the Investment Agreement from their MT Account and given that the Partner Website is not in operation, the Qualified Investors could not now retrieve the Investment Agreement in support.  To cope with situations such as those in a cost-effective and fair manner, the SFC set out in §2 of Schedule 1 to the Amended Statement of Claim a list of assumptions to be adopted by the administrator in analysing the information collected from the Qualified Investors and calculating the amount payable to the Qualified Investors.

Appointment of the administrator

70.  The court in Broadspan Securities commented (at §62) that appointment of an administrator is a fairly conventional order made in cases where there is a need for a third party to go through the logistics and calculations to ensure and give effect to the restitutionary order.  The court in Cardell commented (at §34) that such appointment with directions is desirable and would not unfairly prejudice any person.  It merely seeks to facilitate the recovery, receipt and administration of the proceeds of the scam remaining in Hong Kong for the benefit of the victims.

71.  In view of the number of the Qualified Investors in the present case, the SFC proposes the eligibility of a Qualified Investor for payment will be vetted by the administrator to be appointed by reference to documents including copy of Hong Kong identity card and/or other identity proof, documents showing that the Qualified Investors had transferred the investment principal to the defendants (or any others); the Investment Agreements (if available); and statutory declaration of the Qualified Investor as to the amount of cash paid by and received by him or her.  In the likely event that the total amount recovered would not suffice to pay the Qualified Investors in full, the administrator to be appointed would also be expected to work out the exact sum payable to each Qualified Investor.

72.  Quotation has been obtained from Mr James Wardell and Mr Jackson Ip of Moore Recovery Limited for undertaking the role as the administrators, which would be capped at the amount quoted (excluding expenses such as postage, facsimile, legal cost, advertising and agency fees).

Damages under section 213(8) of the SFO

73.  The claim for damages under section 213(8) is not pursued if the primary relief of a restitutionary order under s.213(2)(b) is granted.  This is consistent with the approach in Qunxing (at §68) and Cardell (at §33).

Order

74.  A draft order was proposed, to which slight amendments were pointed out during the hearing.  The order is now made in terms as appended to this judgment.

Appendix

Judgment is entered in favour of the plaintiff against the defendants as follows:

IT IS DECLARED that:-

1.  The 1^st and 2^nd Defendants are persons within section 213(1)(a)(i)(A) of the Securities and Futures Ordinance, Cap. 571 (“SFO”) in that the 1^st and 2^nd Defendants have contravened section 114(1)(b) of the SFO by holding themselves out as carrying on a business in regulated activities, whilst unlicensed and unregistered and without reasonable excuse.

2.  The 1^st and 2^nd Defendants are persons within section 213(1)(a)(i)(A) of the SFO in that the 1^st and 2^nd Defendants have contravened section 109(1) of the SFO by knowingly issuing an advertisement in which the 1^st and 2^nd Defendants hold themselves out as being prepared to carry on the specified regulated activities, whilst unlicensed and unregistered.

3.  The 1^st and 2^nd Defendants are persons within section 213(2)(b) of the SFO in that they have been, or it appears that they have been involved in contraventions of section 213(1)(a)  of the SFO as aforesaid, whether knowingly or otherwise.

IT IS ORDERED that:-

4.  Pursuant to section 213(1)(a), an injunction under section 213(2)(a) of the SFO is hereby granted, restraining or prohibiting the 1^st and 2^nd Defendants, whether by themselves, their directors, servants, employees, agents or otherwise howsoever from holding themselves out as carrying on a business in Hong Kong in relation to regulated activities as defined in the SFO, whilst not licensed or otherwise authorized within the terms of section 114 of the SFO.

5.  Pursuant to section 213(1)(a), an injunction under section 213(2)(a) of the SFO is hereby granted, restraining or prohibiting the 1^st and 2^nd Defendants whether by themselves, their directors, servants, employees, agents or otherwise howsoever from issuing, publishing, circulating, distributing or otherwise disseminating any advertisement, including via Facebook or the websites www.maximtrader.com, www.maximtrader.biz, www.maximtaiwan.com and partner.maximtrader.com (together the “Websites”), in which the 1^st and/or 2^nd Defendants hold themselves out as being prepared to carry on the specified regulated activities as defined in the SFO, whilst unlicensed and unregistered for such regulated activities within the terms of section 109(1)  of the SFO.

6.  Pursuant to section 213(1)(a), an injunction under section 213(2)(f) or section 213(2)(g) of the SFO is hereby granted against the 1^st and 2^nd Defendants to suspend all internet websites and Facebook pages within their power or control promoting or advertising the carrying out of regulated activities as defined in the SFO, including, but not limited to, the Websites.

7.  Pursuant to section 213(1)(a) of the SFO, an injunction under section 213(2)(c) of the SFO is hereby granted, prohibiting the 1^st Defendant (save for the purpose of complying with paragraph 8 below), whether by itself, its directors, servants, agents or otherwise howsoever from removing from Hong Kong or in any way disposing of or dealing with or diminishing the value of any money in account number 111250152888 held in the name of the 1^st Defendant (“Maxim Capital Account”) with iAccount Services (HK)  Limited (“iAccount”), including all money maintained by iAccount with China Construction Bank (Asia) Corporation Limited (“CCB”) (customer ID 0014641070 and account number 10343921)  that are due and payable to the 1^st Defendant including but not limited to the sum of HKD23.5 million due and payable to the 1^st Defendant by or in respect of iAccount, being the following balances (as of November 2015):-

a.  AUD0.98;

b.  HKD387,156.27;

c.  SGD51.88; and

d.  USD2,957,871.86.

8.  Pursuant to section 213(2)(b) of the SFO, the 1^st and 2^nd Defendants do pay investors (“Investors”) in accordance with the schedule to this Order, subject to the actual amount recovered from the monetary assets in the Maxim Capital Account (“Frozen Monies”) which have been restrained from disposal in accordance with paragraph 7 above, with a view to restoring the Investors, to the extent possible, to any transactions entered into as a result of the 1^st and/or 2^nd Defendant’s conduct referred to in paragraphs 1 to 3 above to the positions in which they were before the transactions were entered into.

9.  Pursuant to section 213(2)(d) of the SFO, Mr James Wardell and Mr Jackson Ip of Moore Recovery Limited be appointed as administrators (“Administrators”) from the date hereof until further order of the Court for the following purposes:-

a.  to receive and administer the Frozen Monies;

b.  to implement and administer the distribution of the Frozen Monies pro rata to the Investors in accordance with paragraph 8 above; and

c.  to perform all incidental and necessary duties as may be directed by the Court.

10.  Pursuant to section 213(2)(f) and (g) of the SFO, for the purposes of paragraphs 8 and 9 above, CCB shall transfer and pay out all monies held in the Maxim Capital Account forthwith to a designated client account of Moore Recovery Limited at a bank (the particulars of which shall be provided in writing to the court within 7 days of its opening)  to be managed by the Administrators referred to in paragraph 9 above.

11.  Pursuant to section 213(2)(f) and (g) of the SFO, the Administrators shall have, inter alia, the powers and duties to take all necessary steps as follows:

a.  to receive, hold and administer the Frozen Monies in the designated client account of Moore Recovery Limited at paragraph 10 above for the purposes identified in paragraphs 9(b)  and (c) above, including to exercise, in relation to the Frozen Monies or any part thereof, all such powers, authorities and things as the Administrators would be capable of exercising if they were the absolute beneficial owners of the same and to use the name of the 1^st Defendant as necessary;

b.  subject to paragraph 13 below, to settle the remuneration, costs and expenses incurred by the Administrators themselves for the purpose of the administration, out of the Frozen Monies;

c.  to calculate, transmit and make pro rata payments to the Investors in accordance with paragraphs 8 and 9(b) above out of the balance of the Frozen monies after settling the payments in sub-paragraph (b) above and paragraph 16 below, at such time(s) and in such manner as may be determined by the Administrators as they deem appropriate;

d.  to correspond with any persons and advertise and make announcements as the Administrators deem fit for the purposes of the administration;

e.  to do all acts, take all measures and/or execute any documentation in relation to the Frozen Monies as the Administrators see fit;

f.  to carry out their functions and duties expeditiously and use all reasonable efforts to pay the Investors in accordance with paragraphs 8, 9 and sub-paragraph (c)  above within 15 months from the date hereof and in any event as soon as reasonably practicable;

g.  to keep proper accounts of all payments received and made pursuant to this Order, report and provide supporting documents to the Plaintiff on the progress of the distribution from time to time and report to the Court and the Plaintiff upon conclusion of payment and distribution of the Frozen Monies pursuant to sub-paragraphs (b)  and (c)  above;

h.  with the leave of the Court, to appoint agents to do any business(es) which the Administrators are unable to do themselves in the discharge and exercise of their powers;

i.  with the leave of the Court, to appoint solicitors (whose fees will be subject to taxation by the Court)  to advise on any points of law arising in the course of the administration, subject always to the right of the Plaintiff to be heard by the Administrators in respect of such point of law. Unless the Plaintiff and the Administrators are in agreement on any such legal advice received by the Administrators, the Administrators shall refer any dispute as to any point of law to the Court for resolution; and

j.  to do all other things incidental to the exercise of the foregoing powers.

12.  The balance of the Frozen Monies (if any) remaining in the hands of the Administrators after making payments to the investors in accordance with paragraphs 8, 9, 11(b) and 11(c)  above shall unless otherwise directed by the Court forthwith be paid by the Administrators into Court to the credit of these proceedings, subject to further order.

13.  The remuneration of the Administrators for acting as the administrators in this action:

a.  is an agreed fixed sum of HKD150,000, save that the Administrator may charge for all reasonable out-of-pocket costs, expenses and disbursements (including any fees of solicitors and agents properly incurred pursuant to paragraphs 11(g)  and (h)  above)  properly incurred in recovering, receiving and administering the Frozen Monies in the designated client account of Moore Recovery Limited set out at paragraph 10 above for the purposes identified in paragraphs 9(b) and (c) above;

b.  shall be paid out of the Frozen Monies within 28 days from the date the Administrator receives the Frozen Monies under paragraph 10 above; and

c.  the out-of-pocket costs, expenses and disbursements to be incurred by the Administrator shall be paid out of the Frozen Monies within 28 days from the date on which the Administrator notifies the Plaintiff and the Defendants of such costs, expenses and disbursements.

14.  The Plaintiff shall provide all reasonable assistance to the Administrators in the performance of the exercise of its powers and duties.

15.  Any notification to the Defendants by the Administrator shall be effected through publication of an advertisement once in each of the following newspapers:

a.  South China Morning Post (an English newspaper published and circulated in Hong Kong);

b.  The Sun (an English newspaper published and circulated in Malaysia);

c.  South China Morning Post (an English newspaper published and circulated in the United Kingdom, which is the same as the South China Morning Post referred to in sub-paragraph (a)  above);

d.  The Strait Times (an English newspaper published and circulated in Singapore);

e.  Today in Seychelles (an English newspaper published and circulated in Seychelles).

16.  The Plaintiff and the Administrators shall have liberty to apply for the purpose of carrying out the terms of this Order.

17.  Costs of this action be paid by the 1^st and 2^nd Defendants jointly and severally to the Plaintiff, to be taxed if not agreed, with certificate for two counsel.  The Plaintiff’s costs to be settled and paid out of the Frozen Monies.

Schedule to the Order

1.  Capitalised terms in this Schedule have the same meanings as those terms defined in the Judgment of Deputy High Court Judge Leung dated and entered on 7 June 2022 (“the Judgment”).

2.  Based on the methodology and assumptions set out below, the Plaintiff has and will identify investors it considers are entitled to be considered by the Administrators for restoration payment from the Frozen Monies under paragraphs 8, 9 and 11 of the Judgment (“Investors”).

3.  The Plaintiff’s calculations of the sum payable to each Investor is based on the information provided by each Investor. The Plaintiff assumes that the information provided by the Investor is true and correct.

4.  To calculate the sum payable to each Investor, the Plaintiff deducts/will deduct the sums of: -

a.  the total monthly returns;

b.  the total principal sum;

c.  the total sum of bonuses; and

d.  the total proceeds (if any) from sale of the ROGP[3] shares

as claimed to have been received (in cash)  by each Investor from the total actual amount of cash he/she paid for the purported Maxim Fund (as defined in paragraph 8.1 of the Plaintiff’s Statement of Claim filed with the Court on 3 December 2018 as amended on 15 January 2020 (“the ASoC”)).

5.  Where an Investor did not provide information on the monthly returns received (in cash)  or claimed that he/she had received monthly returns but could not recall the total amount actually received (in cash), the Plaintiff would/will calculate a notional amount of monthly returns that the Investor should have received with reference to the amount of his/her investment and the return rate as set out in paragraph 12.8 of the ASoC. When applying the formula as set out in paragraph 20 of the ASoC, the Plaintiff would/will adopt the notional amount of monthly returns as if it was the amount claimed to be received by the Investor.

6.  Where an Investor indicated/indicates a net sum representing the difference between the amounts he/she paid and received, the Plaintiff takes the indicated net sum as the amount payable to the Investor.

7.  Schedule 1 of the ASoC sets out the assumptions adopted/to be adopted by the Plaintiff for the calculations.

8.  Upon appointment of the Administrator pursuant to paragraph 9 of the Judgment:

a.  the Plaintiff will provide the following information to the Administrator:

i  the relevant investment details of each Investor e.g. the information it used to calculate the sums payable to each Investor;

ii  the personal particulars of each Investor e.g. full name, ID card number or passport number or other identity proof, contact details such as email address, correspondence address and/or phone number; and

iii   the amount payable to each Investor as calculated by the Plaintiff.

b.  The Plaintiff will advertise in any 2 newspapers published and circulated in Hong Kong inviting claims from any investor who had invested in the Maxim Fund and became aware of the Maxim Fund in Hong Kong and such claims shall be made within 1 calendar month from the date of the advertisement (the “Cut-off Date”)  and no claim shall be accepted after the Cut-off Date.  The Plaintiff will then assess any further claims and update the number of Investors and other information as set out in sub-paragraph (a)  above (and in particular, calculate the revised amounts payable to each Investor based on the methodology and assumptions referred to in this Schedule), which updated information will be provided to the Administrator.

9.  The Administrator shall consider whether an Investor should receive payment pursuant to paragraphs 8, 9 and 11 of the Judgment with reference to the following documents to be submitted by the Investors to the Administrators:

a.  Copy of Hong Kong identity card and/or other identity proof;

b.  Documents showing that the Investor had transferred the investment principal to the Defendants (or any others), for example, bank statements, cash withdrawal slips, transfer slips and/or other records (if available);

c.  Agreement to invest in the Maxim Fund (if available);

d.  A statutory declaration made by the Investor on the amount of cash paid by and received by him/her:

i  in his/her statutory declaration, an Investor may not provide information on the monthly returns received (in cash)  or claims that he/she had received monthly returns but could not recall the total amount actually received (in cash), in which case, the declaration should be based on the notional amount of the returns to that the Investor (as referred to in paragraph 5 above);

ii  in his/her statutory declaration, an Investor may indicate a net sum representing the difference between the amounts he/she paid and received, in which case, the declaration should be based on the indicated net sum; and

e.  Any other available relevant documents or records.

10.  In the event the information provided by an Investor to the Administrator (i.e. the information as referred to in paragraph 9 above) is inconsistent with the information obtained by the Plaintiff (i.e. the information as referred to in paragraph 8(a) above), the Administrator should raise this matter to the Plaintiff and pass the information it received from the Investor to the Plaintiff.  The Plaintiff will then reassess the relevant claim and calculate the revised amount payable to the Investor based on the set of methodology and assumptions as referred to above in this Schedule, which updated information will be provided to the Administrator.  For the avoidance of doubt, in the event of inconsistency, the information provided in a statutory declaration made by the Investor prevails.