(Yicai Global) Dec. 11 -- Hong Kong's market saw intensified regulatory actions against small-cap stocks, with many coming under investigation.

Hong Kong's market regulators the Independent Commission Against Corruption (ICAC) and the Securities and Futures Commission (SFC) recently took top executives of Convoy Global Holdings Ltd. [HK:1019] into custody on suspicion of corruption.

Many small-cap stocks have suspended trading in recent days. As the ICAC-SFC joint operation started to six months to a year ago, more such companies may come under the lens in future, a source told Yicai Global.

The ICAC and SFC recently conducted a joint operation in eight locations, including an office of Convoy Global in North Point. Three high-ranking officers of the listed company were arrested on suspicion of embezzlement. ICAC declined further comment as the probe is still underway.The ICAC acted because market overseer SFC unearthed clues in its investigation and forwarded these to the nformer, whose probe is still unfinished. The investigation reportedly focuses on whether Convoy Global shareholders violated information disclosure obligations over the past few years.

Many Hong Kong shell companies have suspended trading since the end of last month. Market regulators have warned three shells -- Town Health International Medical Group [HK:3886], China Wah Yan Healthcare Ltd. [HK:0648] and First Credit Finance Group Ltd. [HK:8215] -- over publication of false information and ordered them to suspend trading.

The unusually volatile prices of the territory's penny stocks have drawn the attention of its authorities this year, a source told Yicai Global. Many big investors in the special administrative region have been directed to aid the investigation and more companies may therefore wind up in the dragnet in future.

The names of recently-suspended shares appear in the Enigma Network: 50 stocks not to own, compiled by Hong Kong activist and share market analyst David Webb. The market regulator has warned several closely-held companies, Webb wrote. Some companies hold large investments, but lack disclosure and transparency and these listed companies also form a complicated relationship controlling each other through equity.

In addition to those on the Enigma Network: 50 stocks not to own list, many such similar stocks proliferate in the Hong Kong market, a source told Yicai Global. Mainland investors wanting to invest in Hong Kong's stocks can first check a company's shareholding and see whether a large Hong Kong investor's name is linked to it and look up the top ten company shareholders in the HKEX stock settlement system to see whether the company issues penny stocks. They may also analyze the company's fundamentals to see whether its business is opaque. Investing via multifaceted analyses is the only way avoid such pitfalls, the source advised.