Hong Kong SFC Brings Criminal Case Over Alleged Naked Short Selling  

Hong Kong's Securities and Futures Commission (SFC) has charged two individuals with fraudulent trading after they allegedly sold shares they did not own, in a case highlighting the regulator's tougher stance on deceptive market conduct.  

According to the SFC, Chan Hoi Shing and Li Po Ching placed sell orders for 28 Hong Kong-listed stocks between May and December 2020 through an account at Black Marble Securities Limited. Prosecutors allege the pair falsely claimed ownership of the shares, allowing them to execute so-called "naked" short sales that generated around HK$11 million (US$1.4 million) in profit.  

The defendants appeared before the Eastern Magistrates' Court, where they were released on bail and ordered to surrender their travel documents. The case will return to court on February 6, 2026, when prosecutors intend to seek a transfer to the District Court, which handles more serious financial crimes and can impose sentences of up to seven years in prison.  

The charges were filed under Section 300 of Hong Kong's Securities and Futures Ordinance (SFO), a broadly defined anti-fraud provision that criminalizes deceptive acts in securities transactions. Legal experts note that the SFC has increasingly turned to this section to prosecute cases involving dishonesty, as it carries stronger penalties than civil or administrative actions.  

While short selling is legal in Hong Kong, traders must either own the shares being sold or have arranged to borrow them in advance—a safeguard enshrined in Section 170 of the SFO. Misrepresenting ownership to a broker converts an otherwise lawful short sale into a criminal act.  

The SFC's latest filing follows the city's first criminal conviction for fraudulent short selling earlier this year, when a retail trader received an 18-month prison term for similar conduct. That ruling established a precedent for applying criminal penalties to deceptive trading practices.  

Though Black Marble Securities itself is not accused of wrongdoing in this case, the brokerage has faced regulatory scrutiny before. In 2021, the SFC fined and reprimanded the firm HK$1.8 million for internal-control failures identified in an unrelated investigation—raising renewed questions about brokers' oversight of client trading activity.  

If prosecutors succeed in transferring the matter to the District Court, it will signal the regulator's view of the case as both complex and deliberate. A conviction would reinforce the SFC's message that deceptive trading undermines market integrity and will be met with criminal enforcement.  

Hong Kong authorities have intensified enforcement against insider trading, false trading, and market manipulation in recent years. Legal observers say the outcome of this case could further clarify how far Section 300 can be used to prosecute deceptive market behavior—potentially setting a benchmark for future prosecutions.