HKSAR v. Shum Kam Ming

DCCC 266/2021

[2021] HKDC 1149

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO. 266 OF 2021

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REASONS FOR SENTENCE

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1.The defendant pleads guilty to one charge of fraud, contrary to section 16A of the Theft Ordinance[1] (charge 1); one charge of forgery, contrary to section 71 of the Crimes Ordinance[2] (charge 2)  and four charges of using a false instrument, contrary to section 73 of the Crimes Ordinance (charges 3-6).

2.Full particulars of the offences are set out in the Further Revised Summary of Facts dated 8 September 2021, admitted by the defendant on 10 September 2021[3]. 

3.In summary the defendant was employed by Sincere Securities Limited as a stockbroker having obtained his licence on 30 June 2010. 

4.In 2002 Madam Luk opened a stock trading account with Sincere Securities Limited. In 2013 Madam Luk engaged the defendant to be her stockbroker and relied on the defendant to place orders for sale and purchase of stocks on her behalf.  

5.Clients of Sincere Securities Limited were charged brokerage fee for each transaction which fee would be shared between the company and the stockbroker (the stockbroker’s commission). 

6.Clients would receive a “Daily Combined Statement” at the end of each business day in which a transaction was conducted and a monthly account statement in relation to their stock trading account.

Discovery of the fraud

7.On 21 May 2015 Sincere Securities Limited received an undelivered letter addressed to Madam Luk.  The letter enclosed a Daily Combined Statement dated 17 April 2015 in relation to Madam Luk’s account. 

8.The statement was false.  The letterhead was different to the official template of Sincere Securities Limited.  The logo was printed in blue not black and the paper was different to the paper provided by Sincere Securities Limited for the printing of Daily Combined Statements. The defendant’s fingerprints were later lifted from the statement (charge 2).

9.Prior to 2014 paper statements had been sent to Madam Luk.  In early 2014 the defendant informed Madam Luk that paper statements would be replaced with e-statements.  At around the same time Sincere Securities Limited received an application signed by Madam Luk authorising the change in the delivery of the statements to her e-mail address commencing on 27 March 2014. 

10.Since then Madam Luk did not receive any statements by post or email.  Madam Luk did not enquire about this because she had not made frequent transactions during this period and also had known the Chief Executive Officer of Sincere Securities Limited for over twenty years. 

11.After receipt of the undelivered letter the Chief Executive Officer contacted Madam Luk and informed her that her account might have been misused by the defendant.  Madam Luk went through her account and discovered that between February 2014 and May 2015 the defendant had conducted 1,087 transactions without her authority.  The total stock portfolio value of the account had also been substantially inflated from $973,718.87 to $2,570,020. 

12.As a result of the defendant conducting unauthorized trading in Madam Luk’s account he received commission from Sincere Securities Limited in the total sum of $312,179.40.

13.Madam Luk also claimed to have suffered a loss of over $2.6 million. 

Arrest

14.The defendant was arrested on 22 May 2015.  Under caution the defendant remained silent. 

15.A home search was conducted.  A soft copy of the false Daily Combined Statement which was returned to Sincere Securities Limited undelivered was retrieved from the defendant’s computer. 

16.Four more false Daily Combined Statements dated 5 May 2015, 11 May 2015, 14 May 2015 and 21 May 2015 where the value of the account had also been substantially inflated, were retrieved from the defendant’s computer.  Madam Luk stated that copies of these statements had been given to her by the defendant in person (charges 3-6). 

Mitigation

17.In passing sentence, I have carefully considered the oral and written submissions of Mr Boyton, including that the defendant, who is 33, single and lives with his parents, has since his arrest worked in the family business[4].  

18.I take into account the defendant has a clear record.  This however must be viewed in the context the six offences took place over a period of 15 months and involved 1,087 unauthorised transactions which the defendant covered up using false statements.

19.I have read the mitigation letter written by the defendant’s parents who describe the defendant as a filial son and how he has matured since his arrest and transformed the family business.  The parents ask for a lenient sentence so he can continue to run the business and look after them.  

20.I have also read the mitigation letters written by a former colleague and a client of Sincere Securities Limited who both speak very highly of the defendant. 

21.I take into account as a result of the defendant’s misconduct disciplinary action was taken by the Securities and Futures Commission resulting in the defendant in 2017 being prohibited for life under section 194 of the Securities and Futures Ordinance from, inter alia, applying to be licensed or registered or applying to act or continue to act as an executive officer[5].

22.Mr Boyton explains the reason for committing the offences was because the defendant was only paid commission.  The defendant says he was under considerable pressure from his employer to keep up turnover so that he could keep his employment and earn some form of income[6].

Starting point

23.The defendant breached the trust placed in him by both his client and his employer to deal with the monies held on behalf of the client in accordance with the client’s instructions.  As a result of 1,087 unauthorized transactions the defendant benefited in the total sum of $312,179.40 commission.  Madam Luk claims to have suffered an estimated loss of around $2.6 million.

24.In passing sentence, I have considered the principles laid down in R v Clark[7] as applied in HKSAR v Cheung Mee Kiu[8] as adjusted in HKSAR v Ng Kwok Wing[9].  

25.The guidelines state the proper starting point after trial is 2-3 years’ imprisonment where the amount stolen is between $250,000 and $1 million and 3-5 years’ imprisonment where the amount stolen was between $1-3 million.

26.In determining the sentence the following matters are to be considered: (i)  the quality and degree of trust reposed in the offender including his rank; (ii)  the period over which the theft was perpetrated; (iii)  the use to which the money dishonestly taken was put; (iv)  the effect upon the victim; (v)  the impact of the offences on the public and public confidence; (vi)  the effect upon fellow-employees or partners; (vii)  the effect on the offender; (viii)  the offender’s own history and (ix)  those matters of mitigation special to the offender such as illness; being placed under great strain or where there has been a long delay[10]. 

27.Mr Boyton submits that for the purpose of sentence the court should only take into account the amount of commission received by the defendant and not the loss sustained by Madam Luk[11].

28.The obtaining of commission arose because of the defendant’s unauthorised use of Madam Luk’s funds.  In my view the starting point for sentence must take into account not only the commission received by the defendant but also how the defendant perpetrated the fraud and the loss sustained by Madam Luk.

29.Mr Boyton submits Madam Luk’s loss is only $77,992.67 and not over $2.6 million as claimed by Madam Luk[12]. Mr Luk informs the court that the prosecution does not dispute the defence calculation that the actual loss suffered by Madam Luk is only $77,992.67 there being no calculation as to the sum of $2.6 million claimed by Madam Luk[13]. 

30.Mr Boyton submits the defendant’s criminality is on the lower end for which a short immediate custodial sentence is appropriate[14].  

31.I do not agree the defendant’s criminality is on the lower end.  I regard these offences as serious offences.   The offences were committed over a period of 15 months and involved 1,087 unauthorised transactions from which the defendant obtained $312,179.40 commission and Madam Luk also suffered loss.   Further, the defendant used false statements to try cover up his misconduct. 

32.I am satisfied the proper starting point after trial is 2 years and 6 months’ imprisonment for the fraud (charge 1)  and 18 months’ imprisonment for forgery and each charge of using a false instrument (charges 2-6).

33.Giving the defendant full credit for his pleas of guilty reduces the sentences to 1 year and 8 months and 12 months respectively.

Delay

34.As noted earlier one of the matters to be considered in determining the proper level of sentence is mitigation special to the offender such as where there has been a long delay. 

35.All the circumstances must be looked at including whether the offender has acknowledged guilt; where the delay has given the offender the opportunity to rehabilitate himself; whether restitution has been made; the size of the investigation and whether the time taken to bring the case to court was longer than necessary[15].

36.The misconduct was discovered on 21 May 2015 and the defendant arrested the next day.  Mr Boyton submits that the five years taken to bring the case to court has been stressful for the defendant and his family and asks the court to exercise its discretion and further reduce the sentence[16].

37.Mr Luk has submitted to court a timeline of the investigation.  The police investigation appears to have been completed by June 2018 when the case file was sent to the Department of Justice for legal advice.  Almost one year later legal advice was to take further statements.  This was completed by October 2019 when the file was sent to the Department of Justice for further legal advice. 

38.In May 2020 the Department of Justice advised that the defendant was to be charged. After attempts were made to locate the defendant he was eventually charged in January 2021 when he surrendered to the police station. 

39.Notwithstanding the fraud involved 1,087 fraudulent transactions, five years from arrest to deciding to charge the defendant (May 2015 to May 2020)  does seem rather long. I note the Securities and Futures Commission finished their investigation and disciplinary proceedings in August 2017[17]. Arguably the case could reasonably have been brought to court earlier than it was[18].

40.In the circumstances I reduce the sentence on each charge by 3 months to 1 year and 5 months’ imprisonment on charge 1 and 9 months’ imprisonment on each of charges 2-6.

Restitution

41.Mr Boyton says that the defendant is willing to compensate Sincere Securities Limited $312,179.40 being the amount of commission he received[19].  The defendant’s solicitors have paid into court the sum of $312,179.40[20].

42.At the request of Mr Boyton the prosecution have confirmed that Madam Luk does not wish to be compensated for her loss[21]. This is no doubt because Madam Luk has already been compensated by Sincere Securities Limited, the report from the Securities and Futures Commission noting that Sincere Securities Limited compensated Madam Luk for her losses[22]. 

43.As at 10 September 2021 the prosecution had not asked Sincere Securities Limited how much they had compensated Madam Luk notwithstanding the court had raised this matter with the prosecution on 18 June 2021.  On 10 September at the request of the court a telephone call was made to Sincere Securities Limited who stated that they had compensated Madam Luk in the sum of $500,000 in March 2016[23]. 

44.In court on 10 September 2021 Mr Boyton informed the court that the defendant is also willing to compensate Sincere Securities Limited the sum of $77,992.67 being the actual loss of Madam Luk and had brought to court a personal cheque to make payment into court.  Sentence was further adjourned, inter alia, for the defendant to pay this sum of money into court[24].

45.The defendant paid into court the sum of $77,992.67 on 16 September 2021.

46.I take into account that the defendant has made full restitution of the commission he fraudulently obtained and has also made restitution equivalent to the actual loss suffered by Madam Luk.

47.Notwithstanding restitution is made over six years after the defendant was arrested and only when the defendant is about to be sentenced, the fact of restitution is nonetheless a material factor in mitigation.  I further reduce the sentence on charge 1 by 6 months to 11 months’ imprisonment.

Suspended sentence

48.Mr Boyton submits that the mitigating factors may allow the sentences to be suspended[25]. In court Mr Boyton places particular emphasis on the fact that since his arrest the defendant has worked in the family business and become an integral part of the business, the operation of which will be affected if he is sent to prison[26]. 

49.I have carefully considered the submissions of Mr Boyton.  I am satisfied there are no grounds warranting suspension of the sentences.  This was a gross breach of trust of both client and employer. 

50.This is not a case as in Secretary for Justice v Hui Siu Man, cited by Mr Boyton, where there was an immediate acknowledgment of complicity and full restitution[27]. The defendant exercised his right to remain silent and restitution is made only after six years.

Totality

51.Having taken into account the use of false documents in determining the starting point for the fraud I am satisfied concurrent sentences are appropriate.

52.The defendant is convicted and sentenced as follows:

Charge 1 – 11 months’ imprisonment and ordered to pay compensation in the sum of $390,172.07 to Sincere Securities Limited from the monies paid into court; and

Charges 2 – 6 - 9 months’ imprisonment on each charge concurrent and concurrent with charge 1.

The total sentence to be served by the defendant is 11 months’ imprisonment.