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Towry Law settles with HK regulator over hedge fund collapse

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Financial adviser

Financial adviser Towry Law International has agreed a USD 33 million settlement with Hong Kong regulators for promoting two failed hedge funds.


Towry Law, which has denied liability, has nevertheless agreed to make payments totalling USD 33 million by the end of March 2005 to investors in the two failed hedge funds it had promoted.


The two funds, Global Diversified Trading and Global Opportunities Trading, ceased trading in Hong Kong in September 2002 after plunging dramatically in value, and are now in liquidation.


The Global Diversified Trading fund and Global Opportunities Trading fund were managed by Anthony Wong of AMFA in Hong Kong. The Securities and Futures Commission (SFC) charged both Wong and AMFA in 2002 for breaching HK securities laws. The police have been looking for Wong since then, but he has disappeared.


Although the AMFA funds were not managed by Towry Law, the Securities and Futures Commission alleged that the company had mistakenly recommended them to clients, and failed to warn clients after the funds’ problems emerged.


In a statement earlier this week, the SFC said it had decided to settle the charges by only "severely reprimanding" Towry Law, because the payments offered "amount to substantial mitigation" and the executives responsible for the firm’s involvement with the two funds have been replaced. It also said current management had been highly cooperative.


However, the SFC said it still discussing with Towry Law investor complaints it had received about sales of other products. The SFC also said it is worried about the large number of complaints it has been receiving from consumers who say they have been sold investment products without being properly advised as to their nature or riskiness.


Alan Linning, the SFC’s executive director of enforcement, said: "We are concerned at standards in part of the investment adviser industry. We have a sense that there is too much emphasis on earning commission and too little on ensuring suitability."


Towry Law is a unit of U.K.-based fund manager HHG PLC (HHG.LN), which was spun off from Australian insurer AMP Ltd. (AMP.AU). Earlier this year, the company said it would close its international operations to new business, shutting its offices in Japan, Bahrain and Dubai and converting the Hong Kong office to a smaller service center.


In a separate statement Tuesday, Towry Law said its agreement to make payments to investors in the two failed hedge funds didn’t amount to an admission of liability. The SFC said the main responsibility for their collapse belonged to other parties.


Towry Law said it will pay investors in Global Diversified Trading 80% of their original investment, plus a small amount of compound interest, while investors in Global Opportunities Trading will receive 90% of their investment with interest.


It explained the variation by saying the two funds were "launched at different times and in different circumstances." Investors who accept the payments will have to waive any right to sue Towry Law over the issue.

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