Taiwan's Financial Supervisory Commission (FSC) has issued sanctions against Cathay Securities Investment Trust (Cathay SITE) and one of its former fund managers for violations of securities investment trust management regulations. The company was fined NT$1.2 million ($37,942) and the former fund manager, identified as XX Li, was ordered to be released from his position. The violations stemmed from Li leaking official information and using another person's account to trade the same stocks as the fund he managed, without proper reporting to Cathay SITE. This misconduct clearly impacted the normal operation of Cathay SITE's fund business.
The FSC's investigation revealed that Cathay SITE suffered from ineffective internal control systems, which failed to prevent conflicts of interest and supervise personal trading by its managers. The company also did not conduct proper verification after the fact, indicating a lack of due care and loyalty as a manager. As a result of these deficiencies, Cathay SITE faces several business restrictions for the next 12 months, including being barred from applying for securities investment trust fund cases to raise funds for foreign securities, unless specific improvements are made and recognized by the FSC.
Further restrictions include a six-month ban on applying to serve as a general agent for overseas funds or operating futures trust businesses. For three months, Cathay SITE cannot apply to the FSC to invest in foreign enterprises, establish branch offices, or invest in securities investment fund management companies in mainland China. The company's applications for discretionary investment business of government funds will also be affected. The FSC emphasized that the asset management business demands high ethical standards and corporate responsibility, and violations will be severely penalized to maintain investor trust.
This incident follows previous issues at Cathay SITE where its former director, Kuo Ming-chien, had a concurrent role as an independent director at Alchip Technologies (3661.TW), leading to eight funds and discretionary accounts improperly trading Alchip shares. This previous violation resulted in total compensation of NT$944 million (approximately $29.6 million) to affected beneficiaries, including NT$490 million for funds impacting over 50,000 investors. The FSC had also launched an investigation into that matter, highlighting ongoing scrutiny of Cathay SITE's internal controls.
