The Hong Kong Securities and Futures Commission has reprimanded and fined the Hong Kong unit of Soros Fund Management, the family office of billionaire George Soros which Bloomberg says holds about US$25 billion, for naked short selling.

The family office's failures relate to the short selling of the Great Wall Motor Company's shares in 2015 on behalf of a fund it managed. SFM is licensed under the Securities and Futures Ordinance to carry out Type 1 (dealing in securities), Type 2 (dealing in futures contracts) and Type 9 (asset management) regulated activities.

There is no evidence that SFM acted in bad faith. Bloomberg goes on to state that Soros has ceased to intervene in its day-to-day running and that he has transferred most of its AuM to his Open Society Foundations, where most of his wealth now resides.

On 28 August 2015, Great Wall announced its proposed bonus issue of shares, which was equivalent to 200% of its existing issued shares and was subject to the fulfilment of certain conditions. The settlement date of the bonus shares was expected to be on 13 October 2015.

The SFC investigation found that on 30 September, the fund’s custodian notified SFM’s trade support department of SFM’s entitlement to 1,616,000 bonus shares as a result of the fund’s pre-existing holding of 808,000 Great Wall shares. SFM’s trade support team booked the 1,616,000 bonus shares into SFM’s trading system on 30 September without segregating them into a restricted account, as required by SFM’s internal policy. Consequently, the system indicated that a total of 2,424,000 shares of Great Wall were available for trading when in fact only 808,000 shares were available for trading at that point in time.

Working on the erroneous information shown in the system, one of the fund’s portfolio managers placed an order to sell 2,424,000 shares of Great Wall on 2 October, causing the fund to become short by 1,616,000 shares in Great Wall. The SFC considers that SFM failed to act with due skill, care and diligence. SFM has an otherwise clean disciplinary record.

Naked shorting is the illegal practice of short selling shares that have not been affirmatively determined to exist.