DCCC1074/2011
A A
DCCC1074/2011
B IN THE DISTRICT COURT OF THE B
HONG KONG SPECIAL ADMINISTRATIVE REGION
CRIMINAL CASE NO. 1074 OF 2011
C C
----------------------
D D
HKSAR
E v. E
Fong Wai-lap, Adrian (D1)
F Ng Kar-lun, Paco (D2) F
G ---------------------- G
Before: District Judge Tallentire
H Date: 14 December 2012 at 11.00 am H
Present: Mr Phil Chau & Ms Pema Fung, Counsel on fiat, for
HKSAR
I Mr Raymond Fong, instructed by Messrs Chiu, Szeto & I
Cheng, for the 1st Defendant
J Mr Oliver Howell Davies, instructed by Wong & Co., J
assigned by the Director of Legal Aid, for the 2nd
Defendant
K Offence: Conspiracy to defraud (串謀詐騙) K
L
--------------------- L
Reasons for Verdict
M M
---------------------
N 1. Defendants, you have both pleaded not guilty to an N
offence of conspiracy to defraud, contrary to common law and
O O
punishable under section 159C(6) of the Crimes Ordinance, Cap.
200.
P P
Q 2. The prosecution case was as follows. You, D1, were an Q
assistant vice-president of ICBC International Holdings Limited,
R working as a sales trader at its subsidiary ICBC International R
Securities Limited. D2, you were a senior sales marketing
S S
manager at Phillip Securities (Hong Kong) Limited (“PSHK”),
working as a dealer’s representative. Both of you were licensed
T T
persons registered with the Securities and Futures Commission.
U U
CRT31/14.12.2012/NB 1 DCCC1074/2011/Verdict
V V
A A
3. Both ICBCS and PSHK require their traders or dealer
representatives to comply with their compliance manuals. This
B B
includes the duty to act in the best interests of their clients’
C investors and to conduct themselves with honesty, integrity and C
fairness, and also to be familiar with the Prevention of Bribery
D Ordinance. The ICBC manual prohibits staff from receiving any D
benefit which is likely to conflict with their duties to any
E E
client. Staff must also be satisfied that persons placing orders
on behalf of a client’s account have been duly authorised to do
F F
so.
G G
4. Under PSHK’s manual, licensed persons are expressly
H prohibited from using fraudulent or deceptive schemes in H
security transactions and from “rat-trading” in which the
I I
interests of the client are harmed intentionally. As part of
their licensing conditions, both companies undertook not to
J J
conduct proprietary trading, that is they could not make a
K
profit for themselves by trading shares in addition to or K
instead of earning commission from processing trades.
L L
5. In September 2009, Metallurgical Cooperation of China
M Limited (“MCC”) launched an initial public offering intending to M
have their stock listed on the Stock Exchange of Hong Kong on
N N
24 September 2009. On 18 September 2009 MCC announced its
initial public offer price as $6.35 per share. On or about
O O
18 September you, D2, requested D1 to procure shares of MCC for
P your customers before the date of listing of MCC and the grey P
market through ICBCS. Grey market trading refers to the trading
Q of securities prior to the time when they are traded publicly on Q
the Stock Exchange.
R R
6. On 21 September 2009 you together had at least two
S S
phone conversations in which you agreed that after you, D1, had
T procured the shares of MCC from the grey market, that you would T
mark up the share price by about 5 cents per share before
U U
CRT31/14.12.2012/NB 2 DCCC1074/2011/Verdict
V V
A A
selling them to your customers, D2. They would then share the
profits between them.
B B
C 7. On 21 and 22 September, D1, you procured 10 million C
shares of MCC, 3 million at $6.70, 2 million at $6.45 per share,
D and 5 million at $6.50 per share. That is a total price of 65.5 D
million, and an average price of $6.55 per share. After each
E E
parcel of shares had been procured, you, D1, e-mailed you, D2,
with the details of the amount and price. You, D2, replied in
F F
the same manner.
G G
8. At this time you, D2, approached three customers of
H PSHK, Mo Ku-mo, Tang Wai-kin and Leung Kwok-hung, Nelson, H
offering to sell them the 10 million shares. Mo agreed to take
I I
3 million shares on the understanding that the purchase price
would be higher than the IPO price, Tang 2 million at $6.67 per
J J
share and Leung 5 million at $6.75 per share. When offering to
K
sell the shares to them, you, D2, never mentioned that you had K
privately marked up the purchase price, nor had you, D2, sought
L prior approval from the management of PSHK to this agreement L
with D1 to purchase 10 million shares in MCC from ICBCS.
M M
9. Around 23 September of 2009, you, D2, informed Mr Lam
N N
Ho-chu, director of international sales of PSHK, of the purchase
of the 10 million shares of MCC from ICBCS. You submitted three
O O
dealing tickets to Lam. Lam refused to approve the transactions
P as he noticed the selling price of the shares offered to the P
clients was higher than the actual price offered by ICBCS. These
Q transactions had breached the dealing policy to act in the best Q
interests of the client.
R R
10. On that afternoon you called Mr Ma Tor-fuk, head of
S S
sales, trader of ICBCS. You, D2, claimed that ICBCS refused to
T open a new securities account for BSHK. Ma refused as the deals T
had already been confirmed by both sides. As a result of the
U dispute between ICBCS and PSHK about the sale and purchase of U
CRT31/14.12.2012/NB 3 DCCC1074/2011/Verdict
V V
A A
those 10 million shares of MCC, PSHK had not allocated shares of
MCC to Mo, Tang or Leung. You, D1, never reported to Ma that
B B
customers of PSSHK, that is Mo, Tang and Leung, would purchase
C the shares at a marked-up price. C
D 11. On 24 September 2009, the first day of trading, the D
share price of MCC shares fell below the IPO price. The stock
E E
closed at $5.52 per share. ICBCS, pursuant to your confirmation,
D2, transferred 10 million shares of MCC to PSHK, but they
F F
refuse to accept the deal, claiming that you, D2, were not
G allowed to confirm deals on behalf of PSHK. The matter was G
referred then to the SFC.
H H
12. The management of ICBCS and PSHK confirmed that you,
I I
D1, and you, D2, were not allowed to mark-up the share price
before selling to customers for your private gain. Mo and Tang
J J
confirmed they would not agree that the share prices of MCC be
K
marked-up, Leung that he was unaware of the mark-up. On 17 K
February 2011 you were both arrested by ICAC.
L L
13. The prosecution comprised three totally live witnesses
M and four prosecution witnesses, each of whom their witness M
statements were read out in court under section 65B of the
N N
Criminal Procedure Ordinance, Cap. 221. There were admitted
facts, each being in respect of each of you, being P31 for you,
O O
D1, and P32 for you, D2. Also produced in the case were 43
P prosecution exhibits, including three video-recorded interviews P
for each of you.
Q Q
14. P31, the admitted facts for you, D1, entered into
R R
evidence in accordance with the provisions of section 65C of the
Criminal Procedure Ordinance, Cap. 221, established the
S S
following:
T T
(1) D1, your identity was admitted.
U U
CRT31/14.12.2012/NB 4 DCCC1074/2011/Verdict
V V
A A
(2) You were employed by ICBC International Holdings
Limited as a senior associate, institutional
B B
sales, under subsidiary ICBC Securities Limited,
C that is ICBCS. A copy of your employment contract C
dated 15 April 2009 is produced as P1. D1, you
D were the assistant vice president of ICBCH. D
E E
(3) A compliance manual for ICBCH and employees is
produced as P2.
F F
G (4) The acknowledgement of P2 signed by you, D1, is G
produced as P3.
H H
(5) You, D1, were licensed and registered with the
I I
SFC.
J J
(6) Your e-mail account was
[email protected].
K K
(7) Each member of ICBCH, at his or her own e-mail
L account, a unique password. L
M (8) E-mails from and to your account, D1, between 1 M
and 24 September were burned onto a DVD, which is
N N
P8.
O O
(9) Eight such e-mails are produced as P9, A-H.
P P
(10) They have not been interfered with.
Q Q
(11) Your phone line was 2683 3185.
R R
(12) Audio recording in respect of D2’s phone line at
S S
Phillip Securities (Hong Kong), 2287 4935, were
T recorded. The conversations were burned onto a T
DVD, which is P10. They have been properly
U recorded and not tampered with. U
CRT31/14.12.2012/NB 5 DCCC1074/2011/Verdict
V V
A A
(13) A transcript of 73 phone conversations, being P11
B B
and P11A, contained the voice of you, D1, talking
C with D2. C
D (14) The transcripts are unaltered. D
E E
(15) ICBCS opened an account with PSHK on 19 August
2009, being P15 and P15A.
F F
G (16) September 2009, Metallurgical Corporation of China G
Limited (“MCC”) launched an initial public
H offering, and IPO, intending to have the stock H
code 1618 listed on the Stock Exchange of Hong
I I
Kong on 24 September of that year.
J J
(17) On 18 September 2009 MCC announced an IPO price as
K
$6.35. K
L (18) On 21 and 22 September 2009 you, D1, procured 10 L
million MCC shares on the grey market, sourced as
M follows: (a) 3 million at $6.70 per share from M
CITIC Securities on the morning of 21 September
N N
2009; (b) 2 million at $6.45 per share from CITIC
on the morning of 22 September 2009; and (c)
O O
5 million at $6.50 per share from ICBC
P International Strategic Investments Limited on the P
morning of 22 September 2009.
Q Q
(19) On 24 September, the first day of trading, the
R R
share price of MCC fell below the IPO price,
closing at $5.52.
S S
T (20) You, D1, are of hitherto clear record. T
U U
CRT31/14.12.2012/NB 6 DCCC1074/2011/Verdict
V V
A A
15. The admitted facts for you, D2, P32, were entered into
evidence in accordance with the provisions of section 65C under
B B
Criminal Procedure Ordinance, Cap. 221. They provide as follows:
C C
(1) Your identity, D2, is admitted.
D D
(2) You were the dealers representative of Phillip
E E
Securities (Hong Kong) Limited (“PSHK”). Your
agreement dated 11 March 2009 is produced as P4.
F F
G (3) The staff dealing policy for PSHK and employees is G
produced as P5.
H H
(4) PSHK’s compliance manual is P6, with English
I I
translation as P6A.
J J
(5) P7 is your receipt for P5 and P6.
K K
(6) You were licensed and registered by the SFC.
L L
(7) Your e-mail account at PSHK was
M
[email protected]. M
N N
(8) E-mails from D1’s account between 1 and 24
September 2009 were retrieved and burned onto a
O O
DVD, P8. They were not tampered with.
P P
(9) Eight e-mails from P8 are produced as P9, A to H.
Q Q
(10) They have not been tampered with.
R R
(11) Your phone number at PSHK was 2287 4935.
S S
T (12) Audio recordings of your phone conversations were T
burned onto a DVD, which is P10. They have not
U been tampered with. U
CRT31/14.12.2012/NB 7 DCCC1074/2011/Verdict
V V
A A
(13) The transcript of 73 conversations extracted from
B B
P10 are produced as P11, and the English
C translation is P11A. C
D (14) D2, you are one of the participants in the 73 D
conversations on P10. They have not been tampered
E E
with.
F F
(15) Mr Nelson Leung opened an account with PSHK on 21
G February 2008, produced as P12. G
H (16) Mr Mo Ku-mo opened an account with PSHK on 20 H
February 2008, produced as P14.
I I
(17) Mr Tan Wai-kin opened an account with PSHK also on
J J
20 February 2008, which is P40.
K K
(18) ICBCS opened an account of PSHK on 19 August 2009.
L That is P15. And the P15A is the translation. L
M (19) In September 2009 MCC Limited launched an IPO M
intending to have its stock code no. 1618 listed
N N
on the Hong Kong Stock Exchange on 24 September
2009.
O O
P (20) On 18 September 2009 MCC announced the IPO price P
as $6.35 per share.
Q Q
(21) On 21 and 22 September 2009 D1 procured a total of
R R
10 million MCC shares on the grey market, sourced
as per P31.
S S
T (22) On 24 September 2009, which is the first day of T
trading, the share price in MCC fell below the IPO
U price, closing at $5.52 cents. U
CRT31/14.12.2012/NB 8 DCCC1074/2011/Verdict
V V
A A
16. The first live witness was Leung Kwok-hung, Nelson,
B B
PW10 on the list. He had been introduced to Phillip Securities
C by you, D2, and opened an account with them. You, D2, invested C
for him in the stocks and shares. His account with Phillip was
D opened on 28 February 2008 with a credit limit of $1.5 million. D
He only invested a few times prior to September 2009 and was
E E
only advised by you, D2.
F F
17. On your advice he said in September 2009 he was
G interested to purchase stock in MCC, stock code no. 1618. He had G
read about it in the newspaper and heard from friends. He said
H one of his group of friends was Mo Ku-mo, and also Tang Wai-kin. H
He thought they invested too. He thought you, D2, rang him on 22
I I
September 2009. He was to purchase 3 million shares at $6.81
each. He said that Ah Mo was to purchase 3 million shares and
J J
Kenny Tang 2 million. They were to purchase at $6.81 as well.
K
However, PW10 said he never confirmed the price with them. K
L 18. At page 346 there is a telephone conversation with L
you, D2, where PW10 asked for 5 million shares. At page 369
M further discussion where agreed 5 million at $6.70 per share. M
Then there were four conversations on the same day, and PW10 was
N N
to get them at a price cheaper than Mo or Tang. He said he put
money into Phillip’s account but did not know how much to pay.
O O
You said to pay in 1.5 million on 23 September. He just put
P money in. He said it was a big purchase, 33.5 million P
approximately if completed. He prepared the money but never
Q paid. He was only asked to put in 1 to 2 million. Q
R R
19. That day or next day you phoned and asked him to put
in 30 per cent of the purchase price to secure the deal. The
S S
next day he went to your office and had prepared a cheque to
T secure the deal, but you told him there was no stock available T
so the deal could not be completed. He said he had gone to
U Phillip’s office with his friend Kenny Tang who also bought U
CRT31/14.12.2012/NB 9 DCCC1074/2011/Verdict
V V
A A
stock. This is about 2 to 3 pm on 23 September. He intended to
pay his deposit of one-third of the price by cheque. You said
B B
the deal was cancelled and there was no stock, and maybe they
C could buy on the market later. C
D 20. You had already confirmed 5 million shares at $6.70 on D
the phone and PW10 said he had paid $1.5 million into his
E E
account. You gave no explanation, D2, and Mr Lam did not ask for
one. The next day PW10 said he purchased 300,000 shares at $6 to
F F
$6.08 or so. He said he had no idea of what the difference was
G between the grey market and the open market, just bought shares. G
The next day they had fallen in price.
H H
21. Page 599, 24 September, between 8 am and 9 am, you
I I
called to say the deal fell through because you did not have 30
per cent of the price in the account. PW10 felt that this was
J J
not a proper reason. As far as PW10 could recall, you never told
K
him you had marked up the shares. He was then cross-examined K
first by Mr Fong. He confirmed he did not know D1. He accepted
L it was at 1007 hours on 22 September that you, D2, invited him L
to purchase MCC shares. He agreed he did not care where you, D2,
M had got the shares from. He believed the price quoted was M
reasonable. He understood Phillip traded MCC shares themselves.
N N
22. The next day it was 1036 hours when he increased his
O O
order from 3 million to 5 million shares. At this stage no price
P was agreed. However, 3 million at $6.81 per share he believed P
would be the price. The next call was at 11 am when the average
Q price was now $6.70 per share, and this is for 5 million. At Q
counter 13 you agreed that you, D2, asked him to give you some
R R
allowance and pay $6.75 per share. This was because he had not
seen the bill. PW10 said he would pay $6.70, $6.75 or $6.80 and
S S
did not care about the price. He wanted to buy the stocks. He
T did not really consider the IPO price but agreed that you did T
tell him that it was $6.36. He did not care it was higher. He
U U
CRT31/14.12.2012/NB 10 DCCC1074/2011/Verdict
V V
A A
also agreed he automatically bought 300 shares. It seems Kenny
Tang also bought some.
B B
C 23. Mr Davies then cross-examined. He agreed that in his C
witness statement to ICAC he said he had no objection if you,
D D2, made a profit. He did not know what was meant by marking up D
the price. You, D2, represented Phillip, and he did not know
E E
that what they paid for them. He did not care. He agreed he did
not care if Phillip made a profit by marking-up the price.
F F
G 24. The witness statement of Lam Ho-chu, PW2, was then G
read into the record in accordance with the provisions of
H section 65B under Criminal Procedure Ordinance, Cap. 221, as P34 H
and P34A. PW2 said he was the director of international sales at
I I
Phillip Securities (Hong Kong) Limited. He managed the sales
team of about 460 account executives who worked as if self-
J J
employed. They earned commission. The company has a computer
K
system stock automatic trade system (“SATS”). A client contacts, K
an AE puts information into SATS to check the accounts, etc.
L Stock transactions of over $500,000 have to be approved by PW2 L
and one of the other three responsible officers. These are known
M as ROs. M
N N
25. Phillip Securities acts as agent to facilitate the
purchase of shares. The company does not directly sell shares.
O O
The shares are sold at the actual market price. The AEs have no
P basic salary, just commission. The company does not allow an AE P
to sell shares with a different price from the market price, nor
Q is the AE permitted to collect extra commission from the seller Q
or the buyer of shares without the company’s approval. PW2
R R
confirmed you, D2, are an AE under his supervision and someone
who required to comply with the company principles.
S S
T 26. On 24 September 2009 MCC was to be listed. SATS could T
not process unlisted shares, and you, D2, could not handle such
U a large transaction. You had to get approval from PW2 a RO. You U
CRT31/14.12.2012/NB 11 DCCC1074/2011/Verdict
V V
A A
contacted PW2 twice in relation to this transaction. The first
time was around 22 September 2009. PW2 received a message that
B B
clients wished to purchase 10 million shares. PW2 said he was
C not clear if it was 10 million shares or 10 million dollars C
worth of shares.
D D
27. You, D2, never mentioned where the MCC shares came
E E
from, nor the share price. In conversation he told you the
clients had to have accounts with Phillip and had to have, in
F F
those accounts, money equivalent to 30 per cent of the share
G price. You provided a transcript to ICAC of the telephone G
conversations between them at 12:44:39 on 22 September 2009. One
H per cent and 0.2 per cent referred to commission receivable from H
the clients.
I I
28. One or two days before 24 September you came to his
J J
room with three tickets, three clients, covering 10 million
K
shares. Tickets are not used for normal purchase through SATS, K
only when approval of an RL was needed. You said you got some
L shares from ICBC. The clients offered to buy them at different L
prices. Whilst you could not recall exactly, the average price
M was about $6.70. He could not remember ICBC’s selling price of M
the MCC’s shares which you had mentioned to him, but it was
N N
below $6.70. As you learned from SATS, the three clients did not
have sufficient funds in their Phillip’s account, that is 30 per
O O
cent. You refused to approve the transactions. Also the
P transaction price was different from ICBC’s selling price, and P
this was contrary to Phillip’s principles.
Q Q
29. Phillip Securities was an agent, so it was illegal.
R R
And he explained this to you, D2. PW2 said that on the day of
the listing, that is 24 September, his boss phoned to say ICBC
S S
had released 10 million MCC shares to Phillip Securities. Later
T it was found that you, D2, had promised the shares to three T
clients and the deal with ICBCI. You had never told PW2 that the
U three clients and ICBI had confirmed these transactions. U
CRT31/14.12.2012/NB 12 DCCC1074/2011/Verdict
V V
A A
30. Phillip Securities had opened account with ICBI in
B B
August of 2009, but only PW2 and four others could operate it.
C You, D2, were not one of those persons. As an AE you had to have C
approval from an authorised member of staff. It was PW2’s belief
D that you marked up the price of the shares bought from ICBC and D
then sold them to clients to get a profit. Phillip did not
E E
permit you, D2, to collect commission from ICBCI or clients
privately.
F F
G 31. PW2 then dealt with the seizing of the exhibit from G
Phillip by ICAC, the employment history of you, D2, until your
H resignation on 1 December 2009. The seized e-mails confirmed H
that between 21 and 22 September 2009 you, D2, and D1, confirmed
I I
the purchase by Phillip of 10 million MCC shares from ICBCI, 3
million at $6.70, 2 million at $6.45 and 5 million at $6.50. On
J J
23 September you, D2, sent D1 an email saying the transaction
K
was illegal and instructing D1 to cancel it. PW2 then reiterated K
he never proved this transaction.
L L
32. At this point Mr Chau then put some supplemental
M questions to PW2. Phillip Securities deals with stock trading, M
buying and selling of shares. D2 was a sales representative with
N N
no basic salary. Your income comes from commission on sales.
You got 50 per cent of the commission Phillip Securities made,
O O
but it varied. You could apply to the company to get more.
P Other than commission there was no other way an AE could get P
money from the company. IPOs are where a company wants to list
Q on the Stock Exchange offers a price declared at a specific Q
date. Then a few days later it is listed. MCC, on 18 September,
R R
the IPO price was $6.35. You can purchase shares on the grey
market prior to the first day of trading.
S S
T 33. He said you, D2, contacted him on a couple of T
occasions prior to listing of MCC, according to telephone
U records the first occasion being 22 September 2009. PW2 had U
CRT31/14.12.2012/NB 13 DCCC1074/2011/Verdict
V V
A A
asked you if it was to be 10 million in investment shares or
10 million shares. To trade in the grey market you had to have
B B
50 per cent of the price in the account. D2, you asked for a
C special arrangement to collect extra commission. PW2 reminded C
you, you had to use the same ratio for buying and selling. He
D asked you to raise the commission on the seller. At that stage D
you did not give the account numbers, but later you gave some.
E E
34. You came to see him on the second occasion about the
F F
sale of MCC shares. This was before the listing date. You came
G with three dealers tickets filled in with stock number, account G
number, stock quantity and the prices. Three clients wanted to
H buy at around $6.70, 10 million shares in total. If successful, H
Phillip’s commission would be 0.25 per cent of that total, that
I I
is a 167,500. Of that, you, D2, would get half. That is $83,750
approximately.
J J
K
35. You had told him the price on the ticket was higher K
than the price asked for by the seller. You said the clients
L were willing to offer a higher price. You wanted to earn the L
difference, but this was not possible. It was forbidden by the
M rules of the company. Also the SFC stipulated they should M
protect the interests of the client and let the client know what
N N
the stock was selling at.
O O
36. PW2 said he would not approve if the prices were
P different. Also the accounts did not have 30 per cent of the P
price in them. “Therefore I did not approve the transaction.”
Q You, D2, never told him you had already approved the purchase of Q
10 million shares from ICBC.
R R
37. PW2 was then cross-examined by Mr Fong. PW2 described
S S
how deals were confirmed. Your duties, D2, as an AE were to buy
T and sell shares for clients. You could deal in the grey market T
but you needed the RO’s consent for the transactions. An AE
U should not transfer shares to another broker before sale to a U
CRT31/14.12.2012/NB 14 DCCC1074/2011/Verdict
V V
A A
client. PW2 knew nothing of any involvement of Sun Hung Kai in
the deal. You, however, had said that your client had used Sun
B B
Hung Kai previously. PW2 said he has asked nothing about this
C and only cared about Phillip’s role, commission and deposit. C
D 38. PW2 agreed he had heard of proprietary trading, which D
was practised by some firms who bought shares, then sold them at
E E
a higher price. However, he said the proprietary traders he had
heard of did not sell to clients but to other firms. This was
F F
not common. A special licence was needed. He did not know if
G Sun Hung Kai did proprietary trading. G
H 39. Mr Davies then cross-examined on your behalf, D2. PW2 H
confirmed that the new staff were given a dealing manual and a
I I
group compliance manual. They had to be read together. They say
trading and the grey market is permitted unless specifically
J J
disallowed by management. He believed SFC rules did apply to the
K
grey market, but not stipulated. If you, D2, wished to be K
granted dispensation from compliance, you had to come to PW2 or
L another RO. In MCC’s case PW agreed you did this, you followed L
company procedure. PW agreed he could not recall the exact
M conversation he had with you. Whilst he could not remember the M
details, it was a big order so he could remember important
N N
matters.
O O
40. Angel Ma he believed had told him that you, D2, wanted
P to speak to him about 10 million transaction in MCC shares, so P
you called him. He basically told you to check they had the
Q money. There was mention of Sun Hung Kai by you, D2. PW2 Q
understood you spoke of a transaction with that company of grey
R R
market shares. He had no idea what it was. PW said that the
first time you had approached him with regard to a special
S S
arrangement you never mentioned anything between Sun Hung Kai
T and Phillip. He disagreed he was speaking of other members of T
Phillip’s staff opening accounts with Sun Hung Kai. He said the
U deal was illegal. He was talking about the difference in price U
CRT31/14.12.2012/NB 15 DCCC1074/2011/Verdict
V V
A A
and told you this. This was not allowed by the SFC, not acting
in the interest of the client.
B B
C 41. He told you, D2, to come to him again if 30 per cent C
deposit was put down and no profit. He said by this time he
D believed the actual price appeared in newspapers. PW2 agreed he D
told you it was alright if you used another method and Phillip
E E
did not make a profit, as Phillip was the agent. PW2 was not
aware of any arrangement between ICBCI whereby ICBCI opened an
F F
account with Phillip and dealt directly with the three clients.
G Phillip had an account with ICBCH. Prior to this the credit G
limit was 20 million. If the credit limit was to be raised one
H of the five ROs at Phillip had to be approached, had to approach H
ICBCH. If ICBCH unilaterally raised Phillip’s credit limit.
I I
Phillip would be aware it was raised to 80 million. However, PW2
said he was not aware of this.
J J
K
42. Ma Tor-fuk, Dick gave evidence as PW1 on the list. He K
was head of sales and institutional sales at ICBCH. His witness
L statement was admitted into evidence as P39 and P39A for the L
translation, section 65B of the Criminal Procedure Ordinance,
M Cap. 221. He said he was an RO of ICBCH, John Lo was his M
supervisor at the time of the incident, and you, D1, were a
N N
salesman of institutional sales. You liaised with clients and
opened accounts for individual companies and brokers. He, too,
O O
was supervised by John Lo.
P P
43. On 21 September 2009 you told him that your client
Q Phillip Securities wanted to purchase shares of MCC on the grey Q
market. You did not mention who the contact person was. On that
R R
day PW1 was covering for John Lo. PW1 phoned Lo, who agreed to
ICBCH acting as agent to look for sellers of MCC shares. He made
S S
it clear to you that the company acted as an agent, drawing
T commission from transaction, and that they would not carry out T
proprietary trading. In fact all in the company knew it was a
U U
CRT31/14.12.2012/NB 16 DCCC1074/2011/Verdict
V V
A A
condition of their licence from the SFC that they would not do
so.
B B
C 44. You, D1, consulted other salesmen and, as a result, C
agreed to purchase 3 million shares from CITIC at $6.70 per
D share. You confirmed with Phillip Securities by e-mail, P9 and D
P9B. From this e-mail PW1 found the person at Phillip to be D2,
E E
who he did not know. Their dealing department confirmed the
purchase with CITIC’s dealing room and Phillip Securities
F F
dealing room. D1, told you that Phillip wanted to purchase more.
G G
45. On 22 September of 2009 Lo returned and approved a
H rise in Phillip Securities Limit to $80 million. You then, D1, H
then got another 2 million MCC shares at $6.45, and D2 accepted
I I
them. E-mails were exchanged to confirm. That is P9C and D.
CITIC confirmed the sale and Phillip the purchase. D1, you then
J J
sourced 5 million MCC shares from ICBC International Strategic
K
Investment Limited at $6.50 per share, each confirmed by e-mail, K
those being P9E and P9F.
L L
46. It was not until the first day of trading, that is 24
M September 2009, that the shares could be input and assigned to M
Phillip at the relevant price. Phillip was required to pay ICBCH
N N
65.5 million and .1 per cent handling fee, commonly referred to
as “ten drops”, plus a levy for the transaction. You, D2,
O O
contacted PW1 for the first time on 23 September 2009 to say
P that Phillip Securities had a problem and you were unable to P
collect the shares. After this you, D2, had phoned several times
Q to say the deal was cancelled, but PW1 did not consent as it had Q
been confirmed already.
R R
47. On 24 September 2009 ICBCH dealing room input the 10
S S
million shares to Phillip, but Phillip did not accept them and
T did not pay ICBCI. ICBCI then sold them at a loss. ICBCI does T
not do proprietary trading and does not allow scalping or “rat-
U trading” in the grey market. However, trading in the grey market U
CRT31/14.12.2012/NB 17 DCCC1074/2011/Verdict
V V
A A
is allowed. Each new recruit gets a staff code of practice and a
compliance manual. PW1 would not allow any member of staff,
B B
including you, D1, to accept an advantage for privately
C providing convenience and assistance to any client. C
D 48. Mr Chau then asked some supplementary questions by way D
of an examination-in-chief. PW1 said another division of ICBCI
E E
did have a few people authorised to do proprietary trading, but
not your section, D1. When the shares were purchased they acted
F F
as agent for Phillip Securities. PW1 reminded you to be careful
G in dealing with D2 and make sure he was the right person. You, G
D1, applied to John Lo to increase Phillip’s credit limit to
H $80 million. You were not entitled to any money from these H
shares. You received a monthly salary, also a discretionary
I I
bonus at the end of the year. PW1 then listened to and commented
on some phone conversations.
J J
K
49. PW1 was then cross-examined by Mr Fong. He confirmed K
the proprietary trading was a company acquiring shares and some
L of them were at a different price to earn a profit. PW1 said as L
he understood it a firm could approve itself. He knew some
M securities firms did it, but not sure if Sun Hung Kai was one of M
them. Another department or firm of ICBC did do proprietary
N N
trading. He said prior to this incident his company had never
done grey market trading, but John Lo could approve it.
O O
P 50. He said Kay Lau was a member of staff. She opened the P
account for Phillip Securities with ICBCH. She asked PW1 for
Q help to do this. This is one to two days before the first Q
sourcing. He said he did not know if CITIC did proprietary
R R
trading. He believed CITIC would have acquired the shares at
list price, that is $6.35. He said Phillip was their client.
S S
ICBC has paid no commission to CITIC, but Phillip had to pay
T commission of .01 per cent plus the levy. T
U U
CRT31/14.12.2012/NB 18 DCCC1074/2011/Verdict
V V
A A
51. Third batch of shares came from ICBC International
Investment for 5 million at $6.50. He agreed it was possible it
B B
did proprietary trading. The price as agent must match the price
C that it paid to CITIC, could not get approval to do proprietary C
trading because it acted as agent. When a deal was complete the
D shares would belong to Phillip. No duty on his company to know D
what Phillip did with those shares or inform Phillip’s clients
E E
the price that they had sold it to Phillip for.
F F
52. Mr Davies then cross-examined. He confirmed that ICBCH
G had a compliance manual and he believed every member of staff G
was bound by it. He agreed that it unequivocally forbade trading
H in the grey market. That was why he sought John Lo’s approval. H
That permission was sought and given by telephone. PW1 believed
I I
that even if the manual forbade it he could get permission from
seniors. He said that you, D1, were employed on a fixed salary
J J
and the only additional money would be the annual bonus. If
K
ICBCH had made an illegal profit from proprietary trading, he K
did not know of that, if that profit would go to you, D1, nor
L did he know if there was any mechanism for such a payment. He L
believed there was none. PW1 said he was the same level as you,
M D1, but he was more senior. M
N N
53. Mo Ku-mo then gave evidence as PW8. He said that he
had known you D2 since about 2007 and socialised with you.
O O
Nelson Leung and Kenny Tang. They all discussed stocks
P arrangements amongst themselves, invested in the stock market P
opening an account on your advice, D2. That is P13. This was
Q opened in February 2008 with a credit limit of 3 million. Q
R R
54. In September 2009 he was advised by you, D2, to
purchase MCC shares. The four of them were having a drink when
S S
you, D2, raised it. PW8 agreed the price on the grey market was
T $6.35 per share before listing, and PW1 agreed to 3 million. He T
agreed to source 3 million at $6.35 two to three days before
U listing. One day prior to listing PW8 contacted you, D2, to ask U
CRT31/14.12.2012/NB 19 DCCC1074/2011/Verdict
V V
A A
how the purchase was going. You said you were working on it and
not yet done. PW8 said he was in the mainland, and you, D2,
B B
contacted him to say that perhaps he could not buy any shares.
C He gave no reason. He thought there were one or two other calls. C
He said the purchase could not be done. You said the deposit was
D not enough. You never asked him to deposit money. At first D
meeting you said it was $6.35 per share. He said that he would
E E
not allow you, D2, to raise the price of the shares and pocket
the difference.
F F
G 55. PW8 was then cross-examined by Mr Fong. He agreed in G
the Tibet Pub on 21 September 2009 he had purchased 3 million
H shares at $6.35 per share. Mr Davies then cross-examined PW8. H
PW8 agreed his only interest was in making a profit and he did
I I
not care where you, D2, got the shares from. He agreed he never
said that you, D2, must not make a profit.
J J
K
56. Tang Wai-kin, Kenny, then gave evidence as PW9 on the K
list. He said he had known you D2 since 2004 to 2005 and was a
L friend with whom he sometimes socialised. He also knew Mo and L
Nelson Leung. He said he had an account with Phillip Securities,
M which he used to trade in stocks and shares. Sometimes he relied M
on the advice of you, D2. On 21 September 2009 he thought you,
N N
D2, had called him to discuss MCC shares. They should be priced
between $6.91 and $6.98. After the conversation he saw you, D2,
O O
in the Tibet Bar at between 5 and 6 pm. Nelson and Mo were there
P as well, with others present. P
Q 57. On 22 September 2009 they had further telephone Q
conversations. You agreed to purchase 2 million at $6.70. On 23
R R
September 2009 he went to your office with Nelson Leung. After a
wait you said the documentation could not be done so the deal
S S
was cancelled. You did not say why. When you confirmed 2
T million at $6.70 you never said you had purchased at lower T
price, nor that you had marked them up.
U U
CRT31/14.12.2012/NB 20 DCCC1074/2011/Verdict
V V
A A
58. PW9 was then cross-examined by Mr Fong. He was aware
on 21 September that the MCC shares were not yet listed on the
B B
Stock Exchange. At first he did not know the IPO price was
C $6.35. He did not know the price or where you, D2, were getting C
the shares from, nor that you were marking them up. He accepted
D in his witness statement of 17 February 2011, you had told him D
the price was subject to change until settlement.
E E
59. He accepted that you, D2, in a telephone conversation
F F
of 22 September 2009, at 1103 hours, confirmed that 2 million
G shares at $6.70. PW9 said he believed the transaction would go G
through at that price. He confirmed he did not know you, D1. Mr
H Davies then cross-examined. He agreed his only interest was to H
sell the shares at a profit and did not care where they came
I I
from.
J J
60. Wong Chung-fai, Angus, then gave evidence as PW11 on
K
the list. He was the ICAC officer who arrested and interviewed K
you, D1. His statement at P42 was read into evidence in
L accordance with provision of section 65B of the Criminal L
Procedure Ordinance, Cap. 221. He produced your three recorded
M interviews as P16 to P22B, with Notices to Persons in Custody, M
the discs, the transcripts and the translation.
N N
61. The final witness was P13, Chow Wai-lung, Jeff, whose
O O
statement was read into evidence in accordance with the
P provisions of section 65B of the Criminal Procedure Ordinance, P
Cap. 220, as P43. He was the officer who arrested and
Q interviewed you, D2. He produced P23 to P30B, being the Notices Q
to Persons in Custody, the discs, transcripts and translation of
R R
the video recorded interviews.
S S
62. Prosecution then closed its case. In the absence of
T any contrary submission I did rule that each of you had a case T
to answer on the charge. Each of you, having had your rights
U U
CRT31/14.12.2012/NB 21 DCCC1074/2011/Verdict
V V
A A
explained by counsel, elected neither to give evidence nor to
call any defence witnesses. Defence then closed their case.
B B
C 63. On behalf of prosecution and defence, all counsel made C
final submissions. In respect of Mr Chau, with agreement he made
D final submissions even though neither defendant gave evidence, D
and the court approved that arrangement.
E E
64. I turn now to the verdict. The allegation against both
F F
of you is that you dishonestly conspired together to defraud the
G three named victims by: (1) inviting them to buy shares in MCC G
at a price higher than the initial public offering price of
H $6.35; (2) sourcing the shares in MCC at a price lower than the H
three agreed to pay; and (3) not disclosing to them that they
I I
had sourced the shares in MCC at a price lower than they had
agreed and attempting to appropriate the difference between the
J J
selling and buying price of the shares of MCC.
K K
65. The most striking aspect of this case appears to me to
L be the openness or transparency of the alleged conspiracy. We L
have heard evidence that the IPO was a matter freely reported in
M the press and presumably easily able to be checked by the M
alleged victims. Further, you, D2, went to your supervisor PW2,
N N
told him frankly what you intended to do and sought his
permission. The basis of the charge is the agreement to mark-up
O O
shares. It is also odd that the shares purchased by you, D1, had
P already been marked-up. The IPO price, as we know, was $6.35, P
yet 3 million was sourced at $6.70, 3 million at $6.45 and 5
Q million at $6.50. Q
R R
66. What is also clear from the evidence is that the
witness Wilson Lam, PW2, was clearly in my opinion far more
S S
concerned that 30 per cent deposit had not been deposited than
T with the marked-up price of the shares. The latter point he T
referred to in his evidence was almost, in my opinion, an
U afterthought. The theme of openness is echoed in the easily U
CRT31/14.12.2012/NB 22 DCCC1074/2011/Verdict
V V
A A
accessible telephone calls and e-mails, all of which were
recorded and produced in evidence. The contents are eloquent as
B B
to the lack of guile on the part of each of you. There is
C nothing to indicate that you would have been unaware that there C
were facilities to access and record them, yet you proceeded
D with your schemes openly. D
E E
67. The facts are clear enough and there is no doubt in my
mind that you, D1, and you, D2, were acting outside the scope of
F F
your conditions of employment. The question is whether you acted
G dishonestly and therefore illegally. Put bluntly, was this a G
dismissible matter with perhaps a civil remedy available to the
H victims should they suffer loss or a criminal conspiracy? The H
onus is squarely on the prosecution to prove the latter beyond
I I
all reasonable doubt if a conviction is to be achieved. That
you, D1, and you, D2, did agree to the scheme to procure shares
J J
in MCC and sell them via Phillip Securities at a higher price
K
than cost, dividing or sharing the profit it is clear to me K
beyond all reasonable doubt.
L L
68. As I have said, this just does not feel like a
M conspiracy. At first sight, one might take the view that it is M
simply the normal workings of a capitalist economy with traders
N N
sourcing shares or commodities to sell at a profit to others.
But of course I cannot and do not decide this case on mere
O O
feelings for the evidence.
P P
69. Let me address now the particulars of the charge.
Q Perhaps another factor worthy of mention is that none of the Q
three alleged victims asked you, D2, what the shares were bought
R R
for so there is no evidence of you lying or covering up the
sourced price of the shares. You, D2, were honest as to the IPO
S S
price. Taking a step further, I cannot be sure that you, D2,
T would have been anything but honest in giving them the T
information, if asked.
U U
CRT31/14.12.2012/NB 23 DCCC1074/2011/Verdict
V V
A A
70. The allegation is that you D1 and D2 conspired
together to defraud the three alleged victims by these defined
B B
dishonest acts. So let us examine them.
C C
71. One, inviting the three to purchase MCC shares at a
D price higher than the initial public offering price of $6.35. D
This is somewhat strange, as I have said, as you D1, D2 had
E E
acquired the shares at a price higher than the IPO price, and
there is no evidence before me that there is anything dishonest
F F
about you doing so. There is no evidence that the source price
G bears any resemblance to the IPO price. Also there is no G
evidence of you D1 agreeing with D2 to invite the specific named
H persons to buy MCC shares. From the evidence, D1, you have no H
connection with the three persons. At best you are agreeing to
I I
source shares for D2 to sell to unknown parties or indeed
brokers, as D2 you said in one conversation.
J J
K
72. The second set of particulars is that of sourcing the K
shares of MCC at a price lower than that agreed to be paid by
L the three alleged victims. The particulars are well covered in L
the final submission on behalf of D1 by Mr Fong. D1, you had
M sourced 3 million shares at $6.70 per share, 2 million shares at M
$6.45 and 5 million at $6.50. D2, you approached Mr Tang, who is
N N
PW9, first by phone, on 21 September 2009 and mentioned a
transaction price of $6.91 to $6.98. That same day you met Mo,
O O
who is PW8, and it was agreed he would purchase 3 million at
P $6.35. This is very odd as it would be selling at a loss. P
Q 73. The next day D2, you rang PW9 and they agreed Q
2 million at $6.70. It was not clear that they were part of the
R R
3 million sourced from CITIC at that price. Here the prosecution
has further difficulty in establishing the particulars. PW10
S S
called D2 to ask you, D2, to ask him to get 5 to 7 million
T shares. No price was mentioned at that stage on 22 September T
2009 at 10.36. At 10.51 you, D2, called D1 and agreed to take 5
U million shares at $6.50 per share. You, D2, then called D1 and U
CRT31/14.12.2012/NB 24 DCCC1074/2011/Verdict
V V
A A
said you would pay the $6.70 per share, and PW10 agreed to $6.75
per share. Clearly this shows to me that Leung was not against
B B
you, D2, taking a profit. The other consideration that no price
C had been agreed before the shares were sourced. Therefore this C
ground has not been made out.
D D
74. Particular three alleges that you did not disclose to
E E
the three alleged victims that you had sourced the MCC shares at
a price lower than that they are each to pay. This seems, on the
F F
face of it, to be the very epitome of the dishonest act. It is
G clear there is no direct relationship between you D1 of ICBCI G
Securities and the three customers who were clients of you, D2,
H or Phillip. H
I I
75. In that respect, D1, it cannot be said that you have
any duty, legal or moral, specifically to act in the interests
J J
of those persons listed. D1, you have quoted to D2, Phillip, the
K
actual price that you were paying, and that accords with your K
duty. So I agree that D2 only owed a duty of care to the three
L if such a duty existed. The whole evidence is that the three so- L
called victims did not care where the shares came from, were
M little concerned as to who or what was paid for them, and M
concluded that what you, D2, offered them was a reasonable
N N
price. They were only concerned to make a profit.
O O
76. There is no evidence at all that you, D1, have agreed
P with D2 that he should not disclose the price paid to them, or P
anyone, that is that they were paying more than the sourced
Q price. Again the prosecution case has not been proved beyond all Q
reasonable doubt in respect of this particular.
R R
77. Mr Fong did submit on the aspect of whether Phillip
S S
did take part in proprietary trading, but in my opinion that is
T mere speculation lacking in evidence or substance, and does not T
advance the defence case one jot. It is unnecessary to speculate
U in this regard. U
CRT31/14.12.2012/NB 25 DCCC1074/2011/Verdict
V V
A A
78. The fourth particular refers to an attempt by both of
B B
you to appropriate the difference between the selling and buying
C price of the MCC shares. Any attempt to appropriate the price C
difference is of no importance or probative value unless the
D prosecution can prove beyond all reasonable doubt that the D
victim or victims had been defrauded. Indeed, it would have
E E
sufficed if any of the victims can be shown to be defrauded.
F F
79. Mo agreed to 3 million at $6.35 per share. This is not
G and cannot be fraud. It is the IPO price. Tang at 2 million G
from D2 at $6.70 per share, there is a total lack of positive(?)
H evidence to show that they were not part of the 3 million shares H
sourced for $6.70 per share, so no fraud in this case having
I I
agreed to 5 million and agreed to increase the asking price from
$6.70 to $6.75 he found the price reasonable and clearly did not
J J
care if you, D2, did make a profit. Therefore again there is no
K
evidence of the third victim being defrauded. K
L 80. In the round, it is clearly the case where you D1 and L
D2 made a broad agreement to do something that was not in
M accordance with your conditions of employment, but was it M
criminal? In view of what I have found, it was not and it was
N N
not shown to be so beyond all reasonable doubt. There is, in my
opinion, insufficient evidence of dishonesty. To put it simply,
O O
it is a case of trying to make a little bit extra money that I
P am not satisfied can be shown on the evidence to involve P
defrauding or dishonesty.
Q Q
81. Therefore the case is dismissed.
R R
S S
T T
Tallentire
U
District Judge U
CRT31/14.12.2012/NB 26 DCCC1074/2011/Verdict
V V