FALSE OR MISLEADING INFORMATION
Protecting the integrity of market information
Under the Securities and Futures Ordinance (SFO), Cap. 571, protecting the integrity of the market information ecosystem is a foundational priority. Section 298 of the SFO establishes the criminal offence of disclosure of false or misleading information inducing transactions, targeting corporate entities and individuals who manipulate markets using fraudulent narratives or deceptive disclosures.
To ensure complete regulatory coverage, the SFO sets out a civil parallel under section 277. Together, these sections penalise anyone who weaponises misinformation to distort investment choices or securities valuations.
THE STATUTORY SCOPE AND CONDUCT — ACTUS REUS
Disclosure, circulation, dissemination or direct involvement
Section 298(1) casts an exceptionally wide net, covering conduct executed within Hong Kong or from an overseas jurisdiction. The actus reus requires proof that a person disclosed, circulated or disseminated—or was directly concerned in the disclosure, circulation or dissemination of—information regarding securities or futures contracts.
To trigger liability, that information must satisfy two strict statutory benchmarks.
01 — MATERIALLY FALSE OR MISLEADING NATURE
A materially false fact or the omission of a material fact
The information must be false or misleading as to a material fact or through the omission of a material fact.
Omissions
The law recognises that a statement can be technically true on its face but highly misleading because crucial context was withheld or hidden.
Materiality
The distortion or omission must be substantial enough to alter the perceived value or risk profile of the underlying asset.
02 — MARKET IMPACT THRESHOLD
The information must be likely to distort transactions or prices
The dissemination of the information must be objectively likely to cause at least one of two specific market effects.
The transactional inducement
The information is likely to induce another person to purchase, subscribe for or sell securities, or deal in futures contracts, in Hong Kong.
The price alteration
The information is likely to maintain, reduce, increase or stabilise the market price of those securities or futures contracts in Hong Kong.
THE STATE OF MIND — MENS REA AND MENTAL CULPABILITY
The required state of mind depends on the enforcement route
The critical element that dictates whether an individual has committed an offence is their subjective state of mind at the time of dissemination. Sections 277 and 298 together establish three standards of mental culpability regarding whether the information was materially false or misleading: knowledge, recklessness and, for the civil route under section 277 only, negligence.
Knowledge
The person knew that the information was false or misleading as to a material fact, or through the omission of a material fact, but chose to disseminate it.
Recklessness
The person was reckless as to whether the information was materially false or misleading. This requires more than a simple failure to take reasonable care.
Negligence — civil route only
Under section 277, a person may incur civil market-misconduct liability if they failed to exercise reasonable care when verifying the information. Negligence alone does not establish the criminal offence under section 298.
ENFORCEMENT TRACKS — CRIMINAL AND CIVIL
The forum, required state of mind and available sanctions differ
The Securities and Futures Commission and the Department of Justice determine the appropriate enforcement route by reference to the evidence, the seriousness of the public harm and the culpability of the person concerned.
Section 298
Proceedings are heard in the Hong Kong criminal courts and require proof beyond reasonable doubt. The prosecution must prove knowledge or recklessness; negligence alone is insufficient. On conviction upon indictment, the maximum penalty is ten years' imprisonment and a fine of HK$10 million.
Section 277
Proceedings are determined by the Market Misconduct Tribunal. Liability may be based on knowledge, recklessness or negligence. The MMT cannot impose imprisonment, but may make orders including profit disgorgement, executive disqualification and cold-shoulder trading restrictions.
HOW MCS CAN ASSIST
Responding to allegations involving market disclosures
MCS can advise listed corporations, directors, officers, professional advisers, valuers and other individuals during SFC enquiries into announcements, financial statements, prospectuses, circulars, reports and other market communications.
We can analyse whether the information was materially false or misleading, examine any omitted context, assess the likely market effect and the individual's state of mind, and provide representation in compulsory interviews, Market Misconduct Tribunal proceedings, disciplinary action and criminal prosecutions.