HKSAR v. Ma Hon Yeung and Others

DCCC 229-240/2008

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO. 229-240 OF 2008

BETWEEN

Before: Chief District Judge Li

Date: 1 April 2009

Reasons for sentence

1.The defendants were convicted after trial of offences under s. 291 of the Securities and Futures Ordinance, Cap 571(SFO) as follows:

a) D1 was convicted of two counts of Insider Dealing [1]. I found that he, knowing about the relevant information, counselled or procured D2 and D3 to deal in the listed securities of Egana Jewellery & Pearls Ltd. (“EJ”).

b) D2 was convicted of seven counts of Insider Dealing [2]. I found that she, having received the relevant information, dealt in the listed securities of EJ.

c) D3 was convicted of one count of Insider Dealing [3]. I found that he, having received the relevant information, dealt in the listed securities of EJ.

d) D4 was convicted of one count of Insider Dealing [4]. I found that she, having received relevant information, dealt in the listed securities of EJ.

e) D5 faced one count of Insider Dealing [5]. I found that he, having received the relevant information, dealt in the listed securities of EJ.

2.The relevant information in each charge above was the proposed privatization of EJ and the proposed suspension date of trading in its shares.

Factual basis for sentencing

3.D1 was the Vice President of BNP Paribas Peregrine Capital Ltd. (“BNP”) at the material time. He was a member of the team working on the privatization project of EJ. He was aware of the whole course of events leading up to the suspension of trading in the EJ shares on 7/7/06 and the privatization of EJ announced on 10/7/06. In various occasions, he passed the relevant information, directly or indirectly, to D2, D3, D4 and D5. The relevant information was non-public and price sensitive.

4.D2 received this information and bought EJ shares in seven occasions from 20/6/06 to 6/7/06. She bought a total of about 1.5 million shares through her account with Tai Fook Securities Ltd. She resold the shares within two weeks after the resumption of trading on 11/7/06.  She made a profit of about $440,000. According to the bank records, D1 had been funding the transactions in D2’s Tai Fook Securities trading account. There were funds transferred from D2’s bank account to D1’s bank account and vice versa. I am sure D1 and D2 were trading in shares together through D2’s Tai Fook Securities Trading account.

5.D1 also informed D3 about the relevant information. In particular, the suspension date of trading of EJ shares. This information was passed onto D4 and D5. D3 bought 500,000 EJ shares shortly before the close of market on 6/7/06. He resold all of them, within two months after the resumption of trading on 11/7/06, making a profit of about $327,000.

6.D4 bought 500,000 EJ shares shortly before the close of market on 6/7/06. She resold all of them, within three weeks after the resumption of trading on 11/7/06, making a profit of about $105,000.

7.D5 bought 60,000 EJ shares shortly before the close of market on 6/7/06. He resold all of them, one day after the resumption of trading on 11/7/06, making a profit of about $16,000.

8.According to the trading record, D2 to D5 bought 93% of the total turnover of EJ shares on 6/7/06.

Mitigation for D1

9.D1 has a clear record. He is single and lives with his aged mother (83). His mother has hypertension, diabetes and ischaemic heart disease She needs long term medical care. D1 graduated from Ling Nan College in Social Science. He obtained a MBA degree from UK. Since April 2007, he was the Chief Investment Officer in a company called Silver Grant International Industries Ltd. He is taking a master degree course in the Chinese University of Hong Kong. D1 suffered from central retinal vein occlusion in his left eye. He is now left with about 20% eyesight in the left eye.

10.According to his employer, D1 was hardworking and conscientious. He maintained a good relationship with his colleagues. The Superintendant of Sea view Elderly Home certified that D1 performed regular voluntary work since 2003. There are other letters from his friends and his niece. These letters revealed that D1 is a responsible colleague as well as a caring uncle.

11.Counsel for D1, Mr. Edwin Choy, pointed out that the conduct of D1 was not the most serious. Mr. Choy also pointed out that this kind of offence used to be dealt with in the Insider Dealing Tribunal[6] which had no power to order imprisonment. This case is among the lot resulted in criminal prosecution. The choice of venue may create a sense of unfairness to D1.

Mitigation for D2

12.D2 is 33. She lives with her aged parents and contributed regularly to the family expenditure. She finished Form 5 and completed a diploma course in commerce. She was an accounts clerk with Jones Lang La Salle from 1998 to January 2008. According to her former supervisor, D2 was honest and courteous. She is now operating a trading business in cosmetics and diapers. She committed the present offence out of greed. She started regular volunteer work with Mother’s Choice Child Care Centre since November 2008. The probation officer recommended CSO.

13.Counsel for D2, Mr. Keith Yeung, submitted that there was no intricate planning in this case. It was only an opportunist scheme. D2 had no complaint if the profit was forfeited. Mr. Yeung pointed out that D2 was first interviewed on 17/11/06, there was a total lapse of two years and four months before the trial commenced. Counsel urges this court to consider the period in which this case has been hanging over D2. This delay should amount to a strong mitigating factor. Counsel cited several authorities[7] in support of this argument.

14.In addition, Mr. Yeung produced several letters from colleagues, friend and family members of D2. These letters show that D2 is a respectable person, well liked by her friends and a filial daughter too. The probation officer recommended CSO.

Mitigation for D3

15.D3 is 55. He is the elder brother of D1. He has a clear record. He is married to D4 with two sons. D3 was brought up in a poor working class family in public housing estate. After finishing Form 1, D3 became an apprentice in a light bulb factory. He eventually completed his secondary education in an evening school. D3 started as an office boy, he worked hard to reach the position of shipping manager and later merchandise manager in Mast Industries Ltd. Around 1995, he established his own garment business in Dongguan. D3 commands respect from his employees. He is a kind person who donated regularly to the Society for the Prevention of Cruelty to Animals.

16.D3 contributed substantially to the upbringing of D1 and the family after their father passed away. D3 was regarded as hardworking and honest by his friends. He is remorseful. He pleads for leniency so that he may attend his younger son’s graduation ceremony in USA. The probation officer recommended CSO.

Mitigation for D4

17.D4 is 54 and has a clear record. She attained Form 5 education and had completed a secretarial course. She married D3 in 1979 with two sons. Her parents and sister are living in Canada. She was brought up in a working class family. She was first employed as a secretary and started her own business in garment trading in 1985. Together with D3 she established a garment factory in Dongguan around 1995. She earned about $40,000 a month.

Mitigation for D5

18.D5 is 28. He is the elder son of D3 and D4. After obtaining a degree in Canada, he returned to Hong Kong in 2004 to join his parents’ business. He is now the manager of a team of merchandisers. His friends regard him as honest and responsible. He regretted having committed this offence. The probation officer recommended CSO.

Delay

19.Mr. Yeung for D2 pointed out that D2 was first notified of the investigation on 7/11/06. She was interviewed by SFC on 17/11/06. She was only charged on 31/1/08. The trial started on 13/1/09. D2 was convicted on 11/3/09. From the date of offence to the date of verdict, it took 2 years and 9 months. Mr. Yeung fairly stressed that he was not criticising any one, however, this period of delay created extreme anxiety to D2 and amounted to strong mitigation.

20.Prosecution submitted that D2 was first interviewed on 17/11/06. She was interviewed again on 28/2/06 and 11/4/06, there was no admission. The investigation continued through other channels. The Department of Justice decided to prosecute the defendants on 23/11/07. The defendants were formally charged on 31/1/08. The case was first brought up in the Magistrate Court on 28/2/08. It was transferred to the District Court on 25/3/08. A PTR was held in May 2008. The trial was fixed to 13/1/09 in consultation with counsel’s diary.

21.I do not think it is fair to say that there was a delay of 2 years and 9 months. I accept that the SFC started the investigation around early November 2006 and D2 was formally charged on 31/1/08, the whole course took about 14 months.

22.There was a lapse of about a year before the trial commences in January 2009. The PTR and trial dates were fixed in consultation with counsel’s diary. This period is the natural course of the case and should not be categorised as ‘delay’.

23.I do appreciate SFC has wide power in investigation. Given the nature of the transactions and the time needed for the analysis of evidence, I do not think that the time spent for the investigation was inordinate. I discern the following sentencing principles from the authorities cited by Mr. Yeung.

24.I accept that unjustified delay, especially by the prosecution, may amount to strong mitigation. Each case must be decided on its own facts. There is invariably a combination of factors including delay which justifies clemency. These factors include admission of guilt, restitution and change in the personal circumstances of the accused. None of these factors existed in the case of D2.

Prosecution Policy

25.Counsel for D1 pointed out that this case is among the first lot of criminal prosecution in insider dealing offences. A change of prosecution policy created unfairness to D1. According to the Prosecution, as a matter of practice, SFC would refer all cases to the Director of Public Prosecution for consideration from 28 May 2007 onwards. The main consideration is adequacy of evidence and public interest.

26.In my view, it is not for this court to question the prosecution policy provided that the decision by the Director of Public Prosecution is compatible with the principles of a fair trial. Fairness does not dictate that each offender involved in market misconduct be dealt with uniformly. Each case varies in its facts and must be considered separately according to the prosecution policy.  The important issue is that SFC and DPP apply the policy fairly.

27.The criminal regime and the civil regime in SFO are enacted for quite some time. The fact that SFC or Department of Justice has not initiated any criminal prosecution until 2007 cannot help the defendants. A defendant could not rely on the concept of legitimate expectation in criminal law.

28.Given the above, I do not think D1 entitles any reduction of sentence because of the prosecution policy.

Sentence

29.Insider dealing is a serious dishonest conduct. It threatens the integrity of financial markets in Hong Kong. It also undermines the confidence of the public and the investors.   To maintain our position as an international financial centre, it is important to eliminate insider dealing and to reinforce the transparency of the markets.  A clear message must be sent to the public that a court takes a serious view on this offence. Immediate custodial sentence is indicated to deter the potential offenders.

30.In deciding the sentence, I take into account the role of a defendant, the complexity of the plot, the profit gained in the plot and the damage to the market.

31.For D1, he was a member of the team responsible for the privatization project of EJ. He was in a position of trust. In divulging the relevant information, D1 breached the trust repose on him. Not only did he make profit from the relevant information, he tipped off his close relatives enabling the latter to make profits. I considered the divulging of the relevant information an aggravating factor. D1 made a profit of about $440,000 together with D2. In my view, immediate custodial sentence is indicated. In arriving at the appropriate starting point, I have taken into consideration the tariff case in breach of trust[8]. Having considered his background and the facts in this case, I make the following order:

i. I take two and a half years imprisonment as the starting point for the 1^st and 2^nd  charge.

ii. D1 agreed with most of the documentary exhibits. This greatly shortened the length of the trial. In this respect, I deduct three months from each charge.

iii. I note that D1 had performed voluntary work since 2003, this warrant a further reduction of one month from each charge.

iv. In the circumstances, I sentence D1 to two years and two months imprisonment for the 1^st and 2^nd  charge to run concurrently.

v. I further fine D1 $230,000 for the first charge.

vi. I also order any relevant body, of which D1 is a member, to take disciplinary proceedings against D1 pursuant to s.303(2)(c) of SFO.

32.For D2, she was the person who executed the plot on behalf of D1. She was fully aware of D1’s position and used her trading account to perpetrate the plot. She assisted D1 in such a way that her role was much more serious than an opportunist investor. D2’s pattern of trading strikingly corresponded to the landmark dates of the privatization project of EJ [9]. She even possessed a draft chronology, which set out the events leading up to the announcement privatization, at her home at Chuk Yuen South Estate. This document was part of the reply submitted by BNP to SFC dated 4/9/06. I note that the probation officer recommended CSO. However, this option cannot adequately reflect her culpability. Having considered her personal background and the circumstances of the offence, I make the following order:

i. I take 15 months as the starting point for each of the 3^rd to 9^th charge.

ii. D2 agreed with most of the documentary exhibits, I deduct 3 months from the sentence of each charge.

iii. I sentence D2 to 12 months imprisonment for each charge to run concurrently.

iv. I also fine D2 $30,000 for each charge. A total fine of $210,000.

33.For D3 to D5, there is no evidence that they assisted D1 in carrying out the plot. On the contrary, the evidence supported that each of them was an opportunist investor making use of the relevant information divulged by D1. D3 and D4 are industrious entrepreneurs who had developed a respectable business from scratch. While the offence of insider dealing is serious, their culpability is obviously less than that of D1 and D2. D5’s position is similar. In the circumstances, I make the following order:

i. I order D3 to D5 to perform 200 hours of community service in relation to the 10^th to 12^th charge respectively.

ii. I fine D3 $330,000 for the 10^th charge.

iii. I fine D4 $110,000 for the 11^th charge.

iv. I fine D5 $17,000 for the 12^th charge.

Costs under s. 184(5), SFO.

34.This subsection enables the SFC to recover costs incurred in an investigation initiated under s.182. According to Ms. Wong of the Prosecution, this includes staff and overhead costs. The total is $322,742.

35.This kind of costs is different from the legal costs which a court may award after a criminal trial. A court would only award prosecution costs against a defendant whose conduct unreasonably lengthens a trial or being obstructive.

36.The costs under s.184 (5) is a special power. I agree with Ms. Wong that taxpayers should not bear this burden. The principles in relation to legal costs in criminal cases are not applicable. In the absence of special reasons to the contrary, I order that each defendant to pay costs to the SFC in the sum of $64,548.

[1]1^st and 2^nd charges contrary to ss. 291(1)(b) and (8) of the Securities and Futures Ordinance, Cap 571.

[2]3^rd to 9^th charges contrary to ss. 291(5)(a) and (8) of the Securities and Futures Ordinance, Cap 571.

[3]10^th charges contrary to ss. 291(5)(a) and (8) of the Securities and Futures Ordinance, Cap 571.

[4]11^th charges contrary to ss. 291(5)(a) and (8) of the Securities and Futures Ordinance, Cap 571.

[5]12^th charges contrary to ss. 291(5)(a) and (8) of the Securities and Futures Ordinance, Cap 571.

[6]It is now called the Market Misconduct Tribunal.

[7]HKSAR v Lau Kin Yu HCMA 391/2002; HKSAR v Chiu Peng Richard [2002] 1 HKC 401; SJ v Hui Siu Man [1999] 2 HKLRD 236; SJ v Lin Ming Ying [2002] 2 HKLRD 823.

[8]HKSAR v Cheung Mee Kiu CACC 99/2006.

[9]See paragraph 60 of the reasons for verdict.

Application to Court of Appeal for leave to appeal against conviction by the 3rd and 4th defendants refused, Application to Court of Appeal against conviction by the 5th defendant allowed. Please refer to CACC148/2009 dated 12 October 2010