HKSAR v. Ma Sin Chi and Another

HCCC 290/2016 & 319/2016

(Consolidated)

[2018] HKCFI 438

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CRIMINAL CASE NOS 290 AND 319 OF 2016

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REASONS FOR SENTENCE

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1.The 1^st and 2^nd defendants (“D1 & D2”) pleaded guilty on 22 January 2018 to one count of, being an agent, accepting an advantage and one count of offering an advantage to an agent, under ss9(1)(a) and 9(2)(a) of the Prevention of Bribery Ordinance, Cap 201 (“the POBO”) respectively. These offences are punishable under s12(1) of the POBO, the maximum penalty for which is seven years.

PROCEDURAL BACKGROUND

2.This matter was listed before me as a re-trial.  It was due to commence on 22 January 2018 and was set down for 50 days.  On 15 January 2018, at the 3^rd pre-trial review (“PTR”), the court was informed that the matter was to be dealt with by way of plea to a consolidated re-amended indictment.  The re-amended indictment reduced the original allegation of offering and accepting an advantage of $24,800,000 to the offering and accepting of an advantage of $6,391,758.

3.The matters, which formed the basis of the plea, took place between 16 January 2007 and 7 May 2008, both dates inclusive.  The defendants were arrested on 12 April 2011.  They were released on ICAC bail on 13 April 2011.  They entered pleas of not guilty before the Eastern Magistrates’ Court on 21 September 2012 and the matter was therefore committed for trial to this court.  The first trial (“the trial”) took place between 16 September and 6 December 2013.  The trial consisted of five defendants who faced eight counts.  Mr Ma and Mr Ha were D1 and D2 respectively. D3, D4 and D5 were Mr Ha’s two sons and his younger sister.  The jury convicted D1 after trial on Counts 1 to 4; D2 of Counts 5 to 8 and acquitted D3, D4 and D5.  D1 and D2 received the following sentences on 9 December 2013:

D1:

Count 1 – four years

Count 2 – three years

Count 3 – six years

Count 4 – three years

With six months on Counts 1, 2 and 4 to be consecutive to each other and consecutive to Count 3, making a total of seven years six months but from which he then deducted six months to reflect the defendant’s good character.

The court also made a restitution order of $24.8 million in favour of Deutsche Bank.

D2:

Count 5 – four years

Count 6 – three years

Count 7 – six years

Count 8 – three years

With six months on Counts 1, 2 and 4 to be consecutive to each other and consecutive to Count 3, making a total of seven years six months but from which he then deducted six months to reflect the defendant’s good character.

4.On 10 December 2013, D1 filed a Notice of Appeal.  On 2 January 2014, D2 also filed a Notice of Appeal.  Leave to appeal against conviction and sentence was granted on 30 June 2015.  Their appeal was heard over a period of seven days in February and March 2016.  The appeal was allowed and a re-trial was ordered on 17 June 2016 for D1 and on 11 July 2016 for D2.  Bail was granted to D1 on 20 June 2016 and to D2 on 11 July 2016.  By this stage the defendants had spent some 30 and 31 months (and a few days) respectively, in prison.  On 3 August 2016, the two trials were consolidated and the matter was adjourned by agreement to until early February 2017.  In the interim, D2 sought leave from the Court of Final Appeal in respect of the order for retrial, which was unsuccessful.  The new trial came before this court for the 1^st PTR and mention on 8 and 9 August 2017 respectively with a trial date fixed for 22 January 2018.  The prosecution asked for time to serve a further expert report and to consider an amended consolidated indictment.  The next mention hearing was on 17 October 2017 when the defence took objection to the amended indictment, which was unsuccessful.  There was a 2^nd PTR on 13 December 2017.  By this date it is accepted that the parties were in negotiation as to plea.  There is some dispute as to when this was first raised by D2 but Mr Reading SC, on behalf of the prosecution, maintains no such offer was made until October 2017.  In any event, and because Mr Ma was unrepresented, these negotiations moved at a slow pace and despite there being a PTR on 13 December 2017, this court was not informed of the plea until the 3^rd PTR on 15 January 2018, resulting in the defendants entering a plea to the re-amended indictment on 22 January 2018, which was intended to be the first day of trial.

THE PROSECUTION CASE

5.The offending took place between January 2007 and May 2008.  At that time, D1 was employed by Deutsche Bank Aktiengesellschaft (“Deutsche Bank”), initially as Vice President, Warrant Trader, Derivative Trading Group and in February 2007 onwards, as a Director of Deutsche Bank.  He was the Chief Trader in that department at the relevant time.  As such, he was licensed to deal in Securities and Futures by the Securities and Futures Commission and was responsible to his employers for market making in derivative warrants amongst other things.

6.As a Warrant trader, D1 was not permitted by his Principal to apply favourable terms or treatment to any particular client based upon personal considerations because Deutsche Bank, and the market, expected all clients to be treated equally.  It follows that no trader should give information or advice to a particular client concerning specific derivative warrant transactions, other than in general terms as to the current market price and liquidity, and certainly not as to specific prospective prices or liquidity concerning specific derivative warrants.  It also strictly prohibited staff members from accepting bribes of any sort and forbade them from accepting anything of value in return for confidential information belonging to the bank.

7.At this time, D2 was trading, inter alia, in Deutsche Bank derivative warrants through D1.  It is the prosecution case that D2 spoke with D1 on an almost daily basis and they discussed both the market generally and specifically.  In particular, the prosecution allege, and the defence accept, that D1, from time to time, gave information by way of specific recommendations to D2 as to which Deutsche Bank warrants to trade; responded to enquiries from D2 about pricing of particular Deutsche Bank warrants and answered when he was asked whether particular warrants were being priced manually or automatically.  In particular, he assisted D2 further by providing D2 with a bid which allowed him to exit DW03539 on 4 June 2007; by helping him get out of a trade in DW02454 on 9 August 2007, which D2 had purchased at too high a price; by selling DW06899 to D2 on 5 October 2007 at a lower price and by selling back 2 million DW04479 on 3 September 2007 to D2’s son when his son had oversold 2 million of that warrant.

8.It is the prosecution case, and accepted by D1 and D2, that the Ha family made a total net profit of $203,689,156.68 through the trading of Deutsche Bank warrants during the relevant period and that D1 received some $6,391,758 from D2 during the same period as a reward for assisting them to do so.

9.The reward was provided to D1 in the form of cheques and bank transfers by Ha Shing-ming, Ha Shing-chi and Ha Sau-mei, who were D3, D4, D5 in the original trial.  The payments were deposited into accounts of the D1 and his wife in Standard Chartered Bank, Hang Seng Bank and HSBC.  The details are set out in the summary of facts.

10.Ha Shing‑ming and Ha Shing‑chi are the sons of D2.  Ha Sau‑mei is his sister.  Their accounts were used to channel the reward to D1.  That was because D2 was an undischarged bankrupt and could not trade on his own account.  Nevertheless, he was an “Authorised Person” for the trading accounts of his sons and for the securities and commodities accounts of his sister and his wife, Madam Yam Mei‑lin, which were held with Celestial Securities Limited.

11.According to both prosecution experts, D2 and his two sons adopted a rapid-fire strategy, that is buying and selling repeatedly within a short time.  They also conducted pair trading.  They made a net profit of $203,689,156.68 during the relevant period.  The profit making trend in trading Deutsche Bank derivative warrants by D2 and his two sons was not sustained in their trading of non-Deutsche Bank warrants.  By reason of their plea, the defendants accept that the level of profit from the rapid‑fire and pair trade strategy was not possible without the assistance of D1, who was the market maker in most of the transactions during the relevant period.

12.I note that the figure which now appears on the indictment is something of a compromise, as it reflects the difference between the monies said to be received by D1 from all the Ha family accounts and the profit made by him in his Hang Seng Index Futures trading.  The total amount received can be found at Annex A to the Summary of Facts.  One can see that between 16 January 2007 and 7 May 2008, D1 received a total of $24,800,000.  It is now accepted by the prosecution that during the same period he made a profit from trading in Hang Seng Index Futures of some $18,408,242.  That trading was carried out, without the knowledge of his Principle, through a commodities account operated on behalf of D1 by D2 but in the name of his sister.

THE DEFENCE CASE AT TRIAL AND NOW

13.D1 maintained at trial that he had not treated D2 any more favourably than anyone else; the information which he gave to D2 was not proprietary or over which he owed a duty of confidentiality but was publicly available; there was no loss to Deutsche Bank by reason of the profits made by D2 and all of the payments offered and accepted by D1 and D2 respectively had an innocent explanation.

14.Prior to trial, D1 had previously said that he had received $10,000,000 from D2 which had been given to him as a loan for the purchase of a flat.  In evidence during the trial, he said this was not true and that the monies had represented the profits made from his trading in Hang Seng Index Futures through Mr Ha and without the knowledge of his employer, Deutsche Bank.  He gave evidence that $19,400,000 had been given to him from the account of D5 (D2’s sister) representing profits from that trading but he did not know why he had been given the $3.8 million by D3 or the $1.6 million by D4.  By reason of his plea, he now asks the court to believe that of the $24,800,000 originally indicted and received by him, all but $6,391,758 was profit from his trading in Hang Seng Index Futures.  In other words, not $19,400,000 but $18,408,242 represented profit.  The remaining sum of $6,391,758 was indeed, he says, a loan from D1 for the purchase of a flat. This was eventually repaid, he says, by reason of the fact that he never withdrew any further profits made from that same account after 7 May 2008.

15.D1 gave evidence in the trial however D2 did not, as is his right.  Nevertheless, the case of D2 was similar in substance to that of D1 in that he too was relying upon the Hang Seng Index Futures profit and the legitimacy of the information and other assistance given.  By reason of their plea, both defendants now accept that was not the whole story.  The remaining $6,391,758 from the sum of $24,800,000 received by D1 between 16 January 2007 and 7 May 2008 was offered and received as a reward for information given and assistance offered by D1 to D2 on account of Deutsche Bank’s business.  They accept that put Deutsche Bank at risk both financially and in terms of commercial reputation and also undermined the integrity of the relationship between agent and principal.  The practice which had grown up between these two men over a period of time dating back to 2002, was wholly improper in that it provided in advance of other investors, information which could be to the benefit of D1’s trading activities and played some part in the profits which D2 subsequently earned as a result.  The actual nexus between that information and assistance given and the profit derived therefrom is unquantified but, at its highest, represents the profit earned by Mr Ha through trading in Deutsche bank warrants through the various associated accounts and which was $203,689,156.68.

MITIGATION

D1

16.D1 is now 44.  He was born in Hong Kong.  He emigrated to France at an early age and received an education up to university level in France.  He has a Master’s Degree in Economics.  He returned to Hong Kong in 1998 and worked in a number of financial institutions.  He met D2 in 2000 and became close friends with him.  He knew of D2’s bankruptcy in 2002 and knew that D2 was trading in accounts opened in the name of family members whilst an undischarged bankrupt.  In 2004, he joined Deutsche Bank to set up a derivative warrants department.  He introduced D2 to Deutsche Bank.  He says that Deutsche Bank knew full well that D2 was an undischarged bankrupt and nevertheless encouraged him to invest in their products.  In a fairly short time, D1 was promoted to the post of Chief Trader.  Prior to leaving the bank in 2011, D1 had been promoted to Managing Director.

17.By way of explanation for the monies D1 received, Mr Chan (who was junior Counsel in the trial) now maintains that the $6,391,758 was given to D1 by D2 as a loan to purchase a property.  That is a complete change of stance to D1’s evidence in trial in which D1 readily admitted he had previously lied to the investigating authorities about the monies he had received from the Ha family when he had said that he had received $10,000,000 as a loan from D2 for the purchase of a flat.  In trial he maintained that $19,400,000 of the monies received by him from the Ha family had represented profit from Hang Seng Index Futures trading and he had no idea why the remaining $5,400,000 was given to him.  The claim that he had previously lied about the $10,000,000 loan for the purchase of a flat went so far as the Court of Appeal in 2016.  As part of the several grounds of appeal raised with the court, those representing D1 criticised the trial judge’s direction upon lies.  This reversal of position is therefore recent so far as D1 is concerned.  No explanation for that reversal has been provided to the court in mitigation.  Given the pattern of payments from D2 to D1; to whom they were made; from whom they were paid; into which accounts they were paid and the fact that they were made over a period between July 2007 to May 2008 for a purchase apparently made in April 2008, I do not accept the account now relied upon.

18.Nor do I accept, as Mr Chan submits in writing, that there was no provision of confidential information to D2 by D1. This was not, as Mr Chan suggests, a question of two friends chatting over the phone and crossing a line.  These early morning calls were deliberately timed to afford early access to information not yet publicly available or not subject to speedy analysis in the quick fire way that D2 wished to trade.  In so doing, he was ahead of the game and took advantage of the market before others could do so and D2 made considerable profits which were not mirrored in his trading elsewhere when information and assistance had not been provided.

19.I do accept that there was no evidence that Deutsche Bank had suffered any loss as a result of D1’s actions but he and D2 accept that they put the bank at financial risk.

20.Mr Chan also submits his client should be afforded a full one‑third discount for his plea because of the delay in bringing this matter to trial, which was exacerbated he says by the fact that the prosecution sought to amend the original indictment for the purposes of the re-trial.  I have outlined the chronology of the proceedings earlier.  I will not repeat it.  The plea is not timely in any sense of the word.  D1 fully contested the trial.  He took his conviction and sentence to the Court of Appeal and maintained his innocence before that court.  Mr Chan, on his behalf accepts that the trial court and prosecution were not made aware of the Hang Seng Index Futures trading, and therefore the possibility of an answer to a large portion of the alleged advantage, until after D1 went into the box.  Even so, the figure that D1 originally gave in trial as his profit from his trading is not the same as that relied upon today and neither of those figures provide an answer to the remaining and unaccounted for $6.39 million, for which he previously maintained there was an innocent explanation.

21.Where then is the prejudice to D1, which suggests that this late plea in these circumstances should receive a full one‑third discount as one would normally expect for a plea entered in a timely manner before trial?  The papers in this trial are identical to that of the trial.  Save for the addition of an expert (who agrees with the original expert), they remain the same.  The case of the prosecution is to all intents and purposes the same.  It relies upon information and assistance just as it did in the court previously but in that court it had not added the particulars of assistance to the indictment.  There is nothing new for which the defence needed to be prepared.  Any competent counsel and defence team would have foreshadowed the manner in which the prosecution would put its case. Nothing changed up to the point at which one or other party negotiated a plea based upon a revised figure and Mr Reading SC tells me that did not happen until after October 2017 and came from D2.  The only criticism, if any, which can be laid at the door of the prosecution is that the provision of the further expert report, originally foreshadowed during the appeal proceedings, took until October 2017 to materialize.  But given that this was not the trigger for the plea, I do not accept that it is relevant to the issue of delay.

22.In respect of his current personal circumstances, Mr Chan submits that this was the only property/asset D1 possessed and that it had to be sold in his subsequent divorce proceedings.  He says D1 received only some 2 million odd dollars from the division of assets on divorce despite earning a sum of approximately $1,000,000 per month by 2011.  There was no evidence before me to support this submission.  I find that hard to believe if he paid $24,000,000 cash for the flat in April 2008 and sold it a few years later on a rising market.  I cannot imagine the Family Court would allocate almost the whole pot to the ex‑wife even if she was raising the daughters.  I accept he now has a considerably diminished status as an assistant to the MD of a bakery on just $20,000 per month and he is in rented accommodation.  That being the case, I am surprised that Mr Ma did not seek the assistance of the Director of Legal Aid in respect of the new trial.  In any event, his fall from grace is a stark reminder to all of the risks of thinking one can manipulate the system to one’s own advantage and it has cost Mr Ma dearly already, not only in his professional life but also in his personal life.

23.I have taken into account the fact that Mr Ma is of previous good character and that despite his improper professional behaviour, there are colleagues who still rate him highly and speak well of him.  I also take into consideration that this conviction will result in him not being able to return to a job which was extremely lucrative. Mr Chan tells me he is remorseful.

D2

24.D2 is 66, born in Shanghai in 1951.  He came to Hong Kong with his parents in 1955 and was educated up to Form 1.  He was the eldest of three siblings who came to Hong Kong with his parents and as a result took part in their care.  He became a wireless operator at a very young age working on board ship.  In 1972, whilst on board a vessel, D2 suffered from serious burns and needed reconstructive surgery and several operations.  He has been left permanently scarred. Nevertheless, he continued to support his family and younger siblings by finding employment with Cable and Wireless just a year after his accident.  He married in 1978.  He and his wife have two sons, who were the D3 and D4 in the first trial and were acquitted.  At some stage some 20‑odd years ago, D2 started to speculate on the Forex.  In 1995 he became a broker and in 1999 he joined Celestial Securities Limited as a broker.  Unfortunately, he became bankrupt in 2002 as a result of standing as a guarantor for a third party who defaulted on a debt.  That bankruptcy was eventually discharged in February 2008 after D2 had personally paid off the outstanding debt.  Nevertheless, he frankly admits that the trading about which this court is concerned occurred at a time when he was an undischarged bankrupt but that D1 and his superiors knew full well that he was trading through the accounts of his sons and sister because of that.  D1 was by then a good friend and D2 had been introduced to Deutsche Bank by D1.  Indeed, D2 goes so far as to suggest that Deutsche Bank positively courted him because of his successful trading in order to help them make a market in Deutsche Bank Derivative Warrants despite knowledge of his bankrupt status.

25.Mr Tse SC, on behalf of D2, points out that the pattern of information and assistance given to D2 by D1 had been in place long before the period in question.  It was only the loan, he says, which made these activities criminal.  I cannot give D2 any credit for that assertion.  What D1 was doing for D2 was improper on a number of levels, not least because of the fact that he was in breach of his duty to his Principal by showing favour to D2 in this manner.

26.As to the time period over which this offending took place, Mr Tse SC submits that should be reduced from 17 months to 5 months to reflect the period of time in which payments were made to D1 other than payments of profit from the Hang Seng Index Futures trading account.  That might be the case if the payments made to D1, and representing the $6,391,758, were easily identifiable and it could be shown they had a logical relationship with D1/15, the schedule of profits from the Hang Seng Index Futures account.  But they do not.  And neither party has sought to explain how they do.  Nor does it assist either party that there is a suggestion that the loan of $6,391,758 was repaid from the later profits of the same account which were never withdrawn.  The pattern of trading shows no such intention and there is no explanation for what happened thereafter or why.

27.Mr Tse SC, like Mr Chan asks the court to consider giving D2 a full one‑third discount.  My earlier comments apply.  But he also submits that the prosecution were fully aware of the profits made in the Hang Seng account prior to the trial.  They had an opportunity to take a view then but they proceeded on an indictment alleging an advantage of some $24,000,000.  Those same figures have now reduced the advantage to some $6.3 million.  However, he accepts that no such offer of plea was made at that time and he admits that the current offer was made only a few months ago and was slow to fruition because D1 was unrepresented.  Given that he does not accept D1/15 (and I can see why that would be the case) it is difficult to assess what the prosecution had been given at that stage.  If it was anything like the document provided to me in mitigation, I am not surprised that the prosecution decided to proceed.  The figures do not match up with the chronology.  There is a lot which still begs for an explanation.

28.Mr Tse SC, also pointed out in sentencing that this court should only consider the profit made through D5 and Madam Yam’s account, which is about $94 and 37 million respectively i.e. $131 million.  I have taken that into consideration.

SENTENCE

29.There is no tariff case in sentencing bribery.  The facts vary with each case. In SJ v Wong Hong Leung CAAR 5/2009, Stock VP, pointed out that the scale of the bribery and the length of time over which the corruption takes place are factors to be taken into account in sentencing. Stock VP stressed that corruption in public and commercial life is a cancer, and as such a deterrent sentence is warranted.  I have also considered the authorities submitted by the prosecution in the earlier trial, HKSAR v Cheung Mee Kiu CACC99/2006 and HKSAR v Wong Kwok Wang, Warren [2008] 3 HKLRD 245 as well as those submitted in this sentencing hearing; Secretary of Justice v Wong Hong Leung [2010] 1 HKLRD 226, HKSAR v Pau Chin Hung Andy [2014] 1 HKLRD 600, HKSAR v Chan Kau Tai [2008] 4 HKLRD 404.

30.D1 and D2 are men of previous good character.  They have both suffered financially and personally from this offending, which, regardless of blame, has taken some 10 years to come to fruition since the offending began.

31.For D1, there was serious breach of trust but that breach of trust was exercised at the behest of and to the benefit of D2.  It took place over some 17 months if you take into account the full pattern of payments and a net profit of $203,000,000 (or five months and a net profit of $131,000 if I accept Mr Tse’s submission).  On either account, a lot of money was made.  As I have already said, I do not accept that the criminality was restricted to the five‑month period for the reasons already outlined.

32.This was and is a complicated case.  It would have engaged the court and its staff over a protracted period and that time is now freed up for other matters.  The defendants should get credit for that at least.

33.D2 continues to suffer from ill health which requires regular medication.  I take note of the fact that his state of physical health is fragile but under control and I note that he has suffered from depression and that his mental health will have a deleterious effect upon his physical wellbeing.

34.In all the circumstances of this case as outlined above, I consider that a period of imprisonment of five years or 60 months is an appropriate starting point for both defendants.

35.As regards discount for guilty plea at re-trial, both Mr Chan on behalf of D1 and Mr Tse SC on behalf of D2 urged the court to give a full one‑third discount for what they say was their timely guilty pleas.  Whether that would be appropriate in the circumstances of this case is entirely a question for the sentencing judge.  Whilst it is accepted that in the usual course of events, less than a one‑third discount should only be given in exceptional circumstances, this was to be a re-trial which was listed for 50 days and in the end, plea was only entered on the first day of trial.  The tipping point in respect of the alteration of the amount of advantage offered and accepted was only the subject of full discussion after October last year.  Even so, the court was not made aware of the fact that a plea was a possibility until the 3^rd PTR on 15 January 2018.

36.I have considered R v Ng Wing Kwong CACC 62/1995; HKSAR v Chui Chi Wai [2000] 1 HKLRD 704; HKSAR v Lau Chung Kee HCCC 445/2016 and HKSAR v Barrow Lamin CACC 219/2017 and I have also taken note of the considered opinion of the Court of Appeal in HKSAR v Ngo Van Nam & Others [2016] 5 HKLRD 1, even though that case is inapplicable by way of direct authority given the chronology of this matter.

37.Having considered all relevant circumstances, including the original contested trial and guilty pleas at a relatively late stage, it is open to the court to award a less than one‑third discount.  Indeed, the court could not be faulted for considering a discount of 20% only.  However, I am also aware of the delay by the prosecution in serving the additional expert report.  As such, I intend to give a 25% discount on plea respectively.  That means that Mr Ma and Mr Ha would serve a period of imprisonment of 45 months.  I understand that they have already served a sentence of 30 months 12 days for D1 and 31 months 6 days for D2.  Given that they would have received a full reduction for good behaviour whilst in prison of a further one‑third, the resultant mathematics should be that neither defendant will return to custody.  If, for some reason, that is not the case, my intention in sentencing Mr Ma and Mr Ha today is that neither should serve any further time in custody and that the sentence should reflect time served.

RESTITUTION ORDER

38.I further order D1 to pay $6,391,758 to Deutsche Bank by way of restitution as Deutsche Bank was the employer of D1 at the relevant period.

Mr John Reading SC, counsel-on-fiat, Ms Zena Yuen PP, & Mr Gilbert Chong, counsel‑on‑fiat for Department of Justice, for the prosecution

Mr Edward MH Chan, instructed by Cheng & Wong, for the 1^st defendant

Mr Joseph Tse SC & Ms Doris Ho, instructed by KB Chau & Co, for the 2^nd defendant