【SFC Action】First Securities Fraud Case Involving Illegal Short Selling to Have Initial Hearing on April 9

Two male defendants, Chen Haicheng and Li Baocheng, are accused of illegally short selling 28 listed companies and charged with securities fraud. The Eastern District Magistrates’ Court approved the Department of Justice’s application on Friday (20th) to transfer the case to the District Court for criminal proceedings. The first hearing is scheduled for April 9, 2026, and both defendants are granted extended bail.

The case was initiated by the Hong Kong Securities and Futures Commission and is the first securities fraud case involving illegal short selling, prosecuted under Section 300 of the Securities and Futures Ordinance in the District Court. The District Court has a higher jurisdiction than the Magistrates’ Court; it handles civil claims involving amounts from HKD 75,000 up to HKD 3 million, and in criminal cases, the maximum sentence for a District Court judge is 7 years imprisonment.

The Magistrates’ Court has broader criminal jurisdiction, handling various indictable and summary offenses, with a maximum sentence of 2 years’ imprisonment and a HKD 100,000 fine. However, when the court deals with two or more indictable offenses simultaneously, the magistrate can impose a maximum sentence of 3 years. For certain statutes, a single offense can carry a sentence of up to 3 years’ imprisonment and a HKD 5 million fine.

Regarding Section 300 of the Securities and Futures Ordinance, known as the “comprehensive provision,” it covers offenses involving the use of fraudulent or deceptive means in relation to securities, futures contracts, or leveraged foreign exchange trading, and prohibits the use of such means in transactions involving securities listed in Hong Kong or overseas.

The defendants, Chen Haicheng and Li Baocheng, between May 27, 2020, and December 29, 2020, falsely claimed that Chen held sufficient shares in the 28 companies to support their short selling, engaged in illegal short selling transactions of the relevant company shares, and profited approximately HKD 11 million, in violation of Section 300 of the Securities and Futures Ordinance.

Chen Haicheng and Li Baocheng are granted bail but are not allowed to leave Hong Kong, must surrender all travel documents, report regularly to the police station, each pay HKD 280,000 in bail, and reside at their declared addresses, notifying the police of any change of residence.